Stackelberg Equilibrium is a concept in game theory that describes a strategic situation in which one firm, the leader, sets its output level first, followed by another firm, the follower, that chooses its output based on the leader's decision. This dynamic creates a sequential decision-making process that can lead to different outcomes compared to simultaneous competition. The equilibrium occurs when both firms have chosen their outputs in a way that neither has an incentive to deviate from their strategy, resulting in an optimal level of production for both.
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