Advance Production, Inventory, and Asymmetric Cournot-Nash Equilibrium

Sougata Poddar (sougata-poddar@uiowa.edu) and Dan Sasaki
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Dan Sasaki: Institute of Economics, University of Copenhagen

No 1997-20, CIE Discussion Papers from University of Copenhagen. Department of Economics. Centre for Industrial Economics

Abstract: Advance production serves as a means of quantity commitment. Therefore, a quantity-competing firm may have an incentive to invest in advance production in order to pre-empt its opponent(s), even when [i] it is technologically more costly than on-spot production, and [ii] it does not entitle the firm to Stackelberg leadership in the subsequent marketing stage. This paper shows that such pre-emption acts as strategic substitutes between oligopolists. Namely, in a pure-strategy subgame perfect equilibrium, some but not all firms may engage in advance production, even when the firms are a priori symmetric.

Keywords: commitment; cost disadvantage; pre-emption; strategy substitution (search for similar items in EconPapers)
JEL-codes: D43 E22 L13 (search for similar items in EconPapers)
Pages: 13 pages
Date: 1997-12
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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuieci:1997-20

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