Simulation of the Stackelberg–Hotelling Game

Abstract

This work studies the Hotelling game with sequential choice of prices, that is, the Stackelberg–Hotelling (SHOT) game. The game is studied through numerical simulation, which provides the subgame perfect equilibrium solution not only in the unrestricted game but also in the game with reservation cost and with elastic demand. The simulation technique is tested first in the unconstrained game, where the analytical subgame perfect equilibrium solution was already known. Then, the numerical procedure is generalized to cope with the SHOT game with reservation cost and with elastic demand. These enriched formulations of the SHOT game have not been studied so far, so this article provides an exploratory study of them.

Keywords

• game theory
• simulation
• Hotelling
• Stackelberg
• equilibrium