Stackelberg Model

The Stackelberg Model is a strategic game in economics where one firm, the leader, chooses its production quantity first, knowing that another firm, the follower, will respond after observing this decision. The leader aims to maximize its profit by anticipating how the follower will react. The follower then chooses its production based on the leader’s choice, resulting in an equilibrium where both firms' decisions are mutually best responses. This model helps explain how firms with different decision-making advantages interact in markets, often giving the leader a strategic edge.