Collective behavior in the Stackelberg model under incomplete information

Abstract

We present the Stackelberg model with linear demand and cost functions for the agents where the leader agent and follower agents have imprecise initial information regarding the marginal costs of competitors. Agents dynamically refine their perceptions and actions based on observing the actions other agents. We obtain necessary and sufficient conditions of the event that the dynamic converges to a Stackelberg equilibrium with true values of marginal costs. We also clarify the situations when agents cannot come to an equilibrium.