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Production targets

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  • Guillermo Caruana
  • Liran Einav

Abstract

We analyze a dynamic model of quantity competition, where firms continuously adjust their quantity targets, but incur convex adjustment costs when they do so. Quantity targets serve as a partial commitment device and, in equilibrium, follow a hump-shaped pattern. The final equilibrium is more competitive than in the static analog. We then use data on monthly production targets of the Big Three U.S. auto manufacturers and show a similar empirical hump-shaped dynamic pattern. Taken together, this suggests that strategic considerations may play a role in setting auto production schedules, and that static models may misestimate the industry's competitiveness. Copyright (c) 2008, RAND.

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Bibliographic Info

Article provided by RAND Corporation in its journal The RAND Journal of Economics.

Volume (Year): 39 (2008)
Issue (Month): 4 ()
Pages: 990-1017

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Handle: RePEc:bla:randje:v:39:y:2008:i:4:p:990-1017

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  1. George Hall & Adam Copeland & Wendy Dunn, 2005. "Prices, Production, and Inventories Over the Automotive Model Year," 2005 Meeting Papers, Society for Economic Dynamics 346, Society for Economic Dynamics.
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  4. C. Lanier Benkard, 2004. "A Dynamic Analysis of the Market for Wide-Bodied Commercial Aircraft," Review of Economic Studies, Oxford University Press, vol. 71(3), pages 581-611.
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  10. Romano, Richard & Yildirim, Huseyin, 2005. "On the endogeneity of Cournot-Nash and Stackelberg equilibria: games of accumulation," Journal of Economic Theory, Elsevier, Elsevier, vol. 120(1), pages 73-107, January.
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  17. Guillermo Caruana & Liran Einav, 2008. "A Theory of Endogenous Commitment," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 99-116.
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  19. C. Lanier Benkard, 2004. "A Dynamic Analysis of the Market for Wide-Bodied Commercial Aircraft," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 71, pages 581-611, 07.
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Cited by:
  1. Javier Díaz-Giménez & Josep Pijoan-Mas, 2006. "Flat Tax Reforms In The U.S.: A Boon For The Income Poor," Working Papers, CEMFI wp2006_0611, CEMFI.
  2. Liran Einav & S. Ravid, 2009. "Stock market response to changes in movies’ opening dates," Journal of Cultural Economics, Springer, Springer, vol. 33(4), pages 311-319, November.
  3. Kao, Tina & Menezes, Flavio & Quiggin, John, 2012. "Meeting the Competition: Commitment and Competitive Behavior," Risk and Sustainable Management Group Working Papers, University of Queensland, School of Economics 151205, University of Queensland, School of Economics.
  4. Jose Ceron & Javier Suarez, 2006. "Hot And Cold Housing Markets: International Evidence," Working Papers, CEMFI wp2006_0603, CEMFI.

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