Quantity Stickiness versus Stackelberg Leadership

We study the endogenous Stackelberg relations in a dynamic market. We analyze a twice-repeated duopoly where, in the beginning, each firm chooses either a quantity-sticky production mode or a quantity-flexible production mode. The size of the market becomes observable after the first period. In the second period, a firm can adjust its quantity if, and only if, it has adopted the flexible mode. Hence, if one firm chooses the sticky mode whilst the other chooses the flexible mode, then they respectively play the roles of a Stackelberg leader and a Stackelberg follower in the second marketing period. We compute the supply quantities at equilibrium and the corresponding expected profits of the firms. We also analyze the effect of the slope parameter of the demand curve on the expected supply quantities and on the profits.