Foundations of contemporary economics: Heinrich von Stackelberg on market structure

Abstract

Heinrich von Stackelberg introduced several fundamental concepts to economic theory. His contributions to the analysis of market structure are the best-known ones. Since the 1930th his theory of the instability of markets is a cornerstone of theoretical economics. If firms make dependent and independent decisions in an oligopolistic market structure, the outcome is rarely a stable equilibrium. The concept of Stackelberg-leader and Stackelberg-follower is immanent in many real-world business situations. However, only after the emergence of game theory and linear programming the full potential of Stackelberg’s contributions has become apparent. In cost theory and the theory of monopoly, he provided some of the basic principles that became part of economic textbooks. First-semester students of economics and business administration are studying these theories even 80 years after Stackelberg introduced them. In this comment, we refer to his two major works on market structures and cost theory.