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Public Input Competition under Stackelberg Equilibrium: A Note
Author(s) -
LIU YONGZHENG,
MARTINEZVAZQUEZ JORGE
Publication year - 2015
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/jpet.12124
Subject(s) - stackelberg competition , economics , nash equilibrium , productivity , competition (biology) , first mover advantage , microeconomics , competitive equilibrium , mathematical economics , symmetric equilibrium , equilibrium selection , game theory , industrial organization , macroeconomics , repeated game , ecology , biology
This paper examines the Stackelberg equilibrium for public input competition and compares it with the noncooperative Nash equilibrium. Given two asymmetric regions, we show that under the Nash equilibrium the more productive region tends to spend more on public input, which results in this region attracting more capital than the less productive region. The comparison of the two equilibria reveals that the leader region obtains a first‐mover advantage under the Stackelberg setting. This suggests that if regions interact with each other sequentially as in the Stackelberg equilibrium, then the regional disparity that is due to the heterogeneity of productivity is likely to be mitigated or enlarged, depending on which region performs the leadership role in the competition process.