Sequential Supply Decision and Market Efficiency: Theory and Evidence

In Kyung Kim, Yoon-Jin Lee () and Young-Ro Yoon ()
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In Kyung Kim: Department of Economics, Nazarbayev University
Yoon-Jin Lee: Department of Economics, Kansas State University
Young-Ro Yoon: Department of Economics, Wayne State University

No 1703, Working Papers from Nazarbayev University, Department of Economics

Abstract: In a homogeneous goods market, due to the lack of the preemption effect, each firm�s demand is likely to be proportional to its share of total output. Firms are inclined to supply more to increase their market shares, but should also consider the potential cost from excess supply. Thus, firms should make strategic decisions on how much to supply. We study this topic by considering an oligopoly market in which firms make decisions sequentially under a fixed price. We first provide a theoretical model and find the conditions under which either an efficient supply or oversupply occurs. Our model proposes two practical ways to evaluate the efficiency of a market, specifically regarding excess supply, that do not require information about market demand. Using these, we evaluate the efficiency of the Korean movie theater industry. Our empirical findings indicate oversupply of seating capacity in that industry.

Keywords: oversupply; first mover advantage; market efficiency; movie theater industry (search for similar items in EconPapers)
JEL-codes: L13 L22 L82 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2017-03, Revised 2017-03
New Economics Papers: this item is included in nep-com and nep-ind
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