Two firms compete in Stackelberg. The leader, firm L, has no production costs. The marginal cost of the follower, firm F, is equal to 3 with probability 0.25, and to 7 with probability 0.75.
Two firms compete in Stackelberg. The leader, firm L, has no production
costs. The marginal cost of the follower, firm F, is equal to 3 with probability 0.25, and to 7 with probability 0.75. The follower knows its cost, but the leader only knows the probability distribution and associated costs. The demand function is given by p = 100 – 2 yL – 2 yF . Calculate quantities and prices in the Stackelberg equilibrium.
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