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Advance Production, Inventory, and Asymmetric Cournot-Nash Equilibrium

Author

Listed:
  • Sougata Poddar

    (Institute of Economics, University of Copenhagen)

  • Dan Sasaki

    (Institute of Economics, University of Copenhagen)

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.

Suggested Citation

  • Sougata Poddar & Dan Sasaki, 1997. "Advance Production, Inventory, and Asymmetric Cournot-Nash Equilibrium," CIE Discussion Papers 1997-20, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
    • Handle: RePEc:kud:kuieci:1997-20
    as

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    More about this item

    Keywords

    commitment; cost disadvantage; pre-emption; strategy substitution;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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