Dynamic demand and noncompetitive intertemporal output adjustments
AbstractThis paper integrates dynamics on the demand and on the supply side, which are characteristic for many goods, in particular fuels, due to costly adjustments. Furthermore, firms often pursue a quantity strategy and decide on output adjustments, additional capacities, etc. instead of fixing prices, e.g., OPEC moved from posting prices to adjusting output in 1986. This paper provides a corresponding framework (surprisingly ignored in the literature) and derives intertemporal market equilibria: cooperative, and noncooperative in open loop and in Markov strategies. The equilibrium in Markov strategies is different, mostly opposite to the much discussed sticky price models, the qualitative properties are non-trivial and some of them are even surprising, e.g., increased demand sluggishness can raise supply.
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Bibliographic InfoArticle provided by Elsevier in its journal International Journal of Industrial Organization.
Volume (Year): 28 (2010)
Issue (Month): 3 (May)
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Web page: http://www.elsevier.com/locate/inca/505551
Dynamic demand Costly output adjustments Differential game Markov strategies;
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