Explain how the outcome of Cournot game will differ if it is played simultaneously or dynamically....

Explain how the outcome of Cournot game will differ if it is played simultaneously or dynamically.

Question is relevant to game theory.

Expert Solution

In the Cournot dynamic model also known as the stackelberg game, the first player has a first mover advantage as it accounts for the best response of the second player while choosing the optimum level of quantity to produce. This is illustrated through the following general setup:

Note above that the optimal Stackelberg production for firm 1 is 3/2 times more than firm 1's production in simultaneous Cournot. Thus, the Stackelberg profits for firm 1 are 9/8 times the profits it makes in the simultaneous move game. Thus, the outcomes will be different in that the 1st player will produce more and get higher profits in the dynamic Cournot as compared to the static Cournot.

Rahul Sunny answered 1 year ago

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