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Production targets

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Author Info
Guillermo Caruana
Liran Einav

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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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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1756-2171.2008.00047.x
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Publisher Info
Article provided by RAND Corporation in its journal The RAND Journal of Economics.

Volume (Year): 39 (2008)
Issue (Month): 4 ()
Pages: 990-1017
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:bla:randje:v:39:y:2008:i:4:p:990-1017

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. George Hall & Adam Copeland & Wendy Dunn, 2005. "Prices, Production, and Inventories Over the Automotive Model Year," 2005 Meeting Papers 346, Society for Economic Dynamics. [Downloadable!]
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  2. Saloner, Garth, 1987. "Cournot duopoly with two production periods," Journal of Economic Theory, Elsevier, vol. 42(1), pages 183-187, June. [Downloadable!] (restricted)
  3. Ernst R. Berndt & Ann F. Friedlaender & Judy Shaw-Er Wang Chiang, 1990. "Interdependent Pricing and Markup Behavior: An Empirical Analysis of GM, Ford and Chrysler," NBER Working Papers 3396, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Reynolds, Stanley S, 1987. "Capacity Investment, Preemption and Commitment in an Infinite Horizon Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(1), pages 69-88, February. [Downloadable!] (restricted)
  5. Lapham, Beverly & Ware, Roger, 1994. "Markov puppy dogs and related animals," International Journal of Industrial Organization, Elsevier, vol. 12(4), pages 569-593, December. [Downloadable!] (restricted)
  6. Reynolds, Stanley S., 1991. "Dynamic oligopoly with capacity adjustment costs," Journal of Economic Dynamics and Control, Elsevier, vol. 15(3), pages 491-514, July. [Downloadable!] (restricted)
  7. Bresnahan, Timothy F & Ramey, Valerie A, 1994. "Output Fluctuations at the Plant Level," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 593-624, August. [Downloadable!] (restricted)
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  8. Cyert, Richard M & DeGroot, M H, 1970. "Multiperiod Decision Models with Alternating Choice as a Solution to the Duopoly Problem," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 410-29, August. [Downloadable!] (restricted)
  9. Guillermo Caruana & Liran Einav, 2008. "A Theory of Endogenous Commitment," Review of Economic Studies, Blackwell Publishing, vol. 75(1), pages 99-116, 01. [Downloadable!] (restricted)
  10. Kydland, Finn, 1975. "Noncooperative and Dominant Player Solutions in Discrete Dynamic Games," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(2), pages 321-35, June. [Downloadable!] (restricted)
  11. Fershtman, Chaim & Kamien, Morton I, 1987. "Dynamic Duopolistic Competition with Sticky Prices," Econometrica, Econometric Society, vol. 55(5), pages 1151-64, September. [Downloadable!] (restricted)
  12. Maura P. Doyle & Christopher M. Snyder, 1999. "Information Sharing and Competition in the Motor Vehicle Industry," Journal of Political Economy, University of Chicago Press, vol. 107(6), pages 1326-1364, December. [Downloadable!] (restricted)
  13. C. Lanier Benkard, 2004. "A Dynamic Analysis of the Market for Wide-Bodied Commercial Aircraft," Review of Economic Studies, Blackwell Publishing, vol. 71, pages 581-611, 07. [Downloadable!] (restricted)
  14. Jun, Byoung & Vives, Xavier, 2004. "Strategic incentives in dynamic duopoly," Journal of Economic Theory, Elsevier, vol. 116(2), pages 249-281, June. [Downloadable!] (restricted)
  15. Romano, Richard & Yildirim, Huseyin, 2005. "On the endogeneity of Cournot-Nash and Stackelberg equilibria: games of accumulation," Journal of Economic Theory, Elsevier, vol. 120(1), pages 73-107, January. [Downloadable!] (restricted)
  16. Kahn, James A, 1992. "Why Is Production More Volatile Than Sales? Theory and Evidence on the Stockout-Avoidance Motive for Inventory-Holding," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 481-510, May. [Downloadable!] (restricted)
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  17. Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-66, May. [Downloadable!] (restricted)
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  1. Jose Ceron & Javier Suarez, 2006. "Hot And Cold Housing Markets: International Evidence," Working Papers wp2006_0603, CEMFI. [Downloadable!]
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  2. Javier Díaz-Giménez & Josep Pijoan-Mas, 2006. "Flat Tax Reforms In The U.S.: A Boon For The Income Poor," Working Papers wp2006_0611, CEMFI. [Downloadable!]
    Other versions:
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