A DYNAMIC STACKELBERG MODEL WITH PRODUCTION-ADJUSTMENT COSTS

We investigate the (dynamic) stability of a Stackelberg oligopoly mode l of a market of a homogeneous good, with output competition, one Stac kelberg leader and a number of identical followers. We assume that eac h firm incurs quadratic production-adjustment costs if it changes its output. We present a simple necessary and sufficient condition for sta bility of the model. Using the condition, we compare the stability of this model with the stability of two related Cournot models in which a ll firms present are followers. It turns out that the Stackelberg mode l is ''more stable'' than these two Cournot models.