Intra-Industry Trade with Identical Products in Cournot and Stackelberg Models of Duopoly

Intra-Industry Trade with Identical Products in Cournot and Stackelberg Models of Duopoly

This paper analyzes and compares Cournot and Stackelberg duopoly equilibria focusing on identical products under multilateral free trade. The author first shows that the home firm always supplies more in the home market and exports more to the foreign market in the Stackelberg equilibrium model than in the Cournot equilibrium model. However, whether the foreign firm exports more to the home market and supplies more in the foreign market in the Cournot or the Stackelberg equilibrium models depends on the extent of the transport cost. In addition, the author also analyzes the welfare of the home country and the foreign country, respectively, in the Cournot and the Stackelberg equilibrium models and concludes that the welfare of the home country is always greater in the Stackelberg equilibrium than in the Cournot equilibrium, and that of the foreign country is greater in the Stackelberg equilibrium than in the Cournot equilibrium when transport cost is sufficiently high under the condition that the same demand exists in two countries, and the home firm and the foreign firm have the same marginal cost under multilateral free trade.