At this market price and quantity sold on the market, the isoprofit curves of the leader and the follower are displayed in graph 2, with the leader’s isoprofit curve in green and the follower’s isoprofit curve in blue. The isoprofit curves intersect each other (not tangent to each other), which suggests that this allocation under the Stackelberg model is Pareto inefficient. The shaded orange area represents the better allocations, i.e., the allocations that Pareto dominate the current allocation. Both the leader and the follower would be better off (earn higher profits) if they moved to an allocation in the orange area.
Tip
You can choose whether to display the areas with better allocations in graph two by toggling the “display area with better allocations” switch.
Tip
To experiment with different allocations of quantities between the leader and the follower, you can change the quantity sold by the leader and/ or the follower in a few ways: by typing the number directly into the “Leader’s/ Follower’s Chosen Quantity” fields, moving the slider underneath the “Leader’s/ Follower’s Chosen Quantity” fields, or clicking and dragging the red point in the second graph to change the allocation between them.
