Strategic Advance Production
AbstractAdvance production serves as a means of quantity commitment. Therefore an oligopolist, unlike a monopolist, 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. When firms set quantities, 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, whether the firms are a priori symmetric or not. More generally, a firm's incentive for advance production arises only if there is a quantity-setting opponent, irrespective of the firm's own strategic variable (i.e., price or quantity) and the characteristics of the concerned products (i.e., substitutes or complements).
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Bibliographic InfoPaper provided by Exeter University, Department of Economics in its series Discussion Papers with number 0104.
Date of creation: 2001
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inventory; storage costs; time preferences; pre-emption; strategic substitution.;
Find related papers by JEL classification:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
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- Jean-Christophe Poudou, 2005. "Storage and Competition in gas market," Economics Bulletin, AccessEcon, vol. 12(19), pages 1-9.
- Poddar, Sougata & Sasaki, Dan, 2002. "The strategic benefit from advance production," European Journal of Political Economy, Elsevier, vol. 18(3), pages 579-595, September.
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