Online Simulation: the Stackelberg Competition Simulation

In a bid to determine the advantages of being a leader and a followed in a competitive business context, the Stackelberg Competition Simulation was used. Although the ideal situation in the game, one leader and one follower, may not occur in actuality, it presented a hypothetical scenario of what executives experience on a daily basis as they strive to gain a competitive advantage amid stiff market competition. From the simulation, it is evident that being a leaders and a follower present different opportunities and threats. However, the key difference between the leader company and the following company is that the former is taking an increased risk since it is operating in a somewhat unexplored market. Conversely, the leading company makes informed production decisions in light of available market information. Therefore, it is apparent that the first mover is not necessarily at an advantage.

Although the first mover or the leader benefits from setting the parameter of the market, the risk that the firm experiences is relatively higher, hence, investment on a leader firm is highly volatile. Contrariwise, the following firm can make informed business decisions based on the demand data gathered about the market. Therefore, a following firm experiences relatively reduced risks. In the event that the leading firm exercises caution and produces less than the quantity demanded, the following firm can take advantage of the situation to optimize its profits. However, when the leading firm suppliers almost all the product demanded by consumers, then the following firm is bound to make relatively reduced profits. Despite the differences in scenarios, being a follower is much more beneficial than being a leaders because a firm will experience a reduce level of risk. Even though being a leader can be lucrative, the risk of producing more than what is demanded is high, and the result of such an occurrence is significant business losses.

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