Final answer:
In the Stackelberg model, the leader has the advantage of being able to set the quantity or price in the market before the follower. This allows the leader to capture a larger market share and potentially earn higher profits.
Step-by-step explanation:
In the Stackelberg model, the leader has the first-mover advantage because they are able to set the quantity or price in the market before the follower. This allows the leader to capture a larger market share and potentially earn higher profits.
For example, let's say we have two firms in an oligopolistic market, Firm A and Firm B. Firm A is the leader, and Firm B is the follower. Firm A decides to set a high price or produce a large quantity of the product. Firm B, being the follower, observes the actions of Firm A and adjusts its own quantity or price accordingly.
By acting first, the leader can create a credible threat and deter the follower from entering or competing aggressively in the market. This advantage stems from the leader's ability to precommit to a strategy and influence the behavior of the follower.