to estimate the reaction function of the rival which will be shifted as it learns from experiences, i. e., observations of facts. In other words, an equilibrium is possible where conjectures are justified by results with the coefficient of conjectural variation explained in terms of parameters in demand and cost functions, if each firm is assumed to behave as the leader in the sense of Stackelberg. The stability of Stackelberg equilibrium is shown when the marginal costs increase sharply relative to the slope of the demand curve.