The History of the Static Equilibrium Dominant Firm Price Leadership Model

Abstract

The static equilibrium dominant firm price leadership model is traced to a seminar presentation by Karl Forchheimer in 1906, who seems to have originated the concept of a dominant firm facing competition from fringe rivals maximizing profits on the basis of residual demand--industry demand less quantity supplied by the fringe. Heinrich von Stackelberg completed the model analytically in 1934, although in a duopoly context absent stable equilibrium. George Stigler finally combined von Stackelberg's comparative statics with Forchheimer's price-taking fringe rivals, to articulate (in 1940) the equilibrium model as it has been used in countless intermediate microeconomics texts and classrooms for the half century since.Competition; Duopoly; Equilibrium; Price Leadership