A general model of two-period duopoly is set up to show how inventories can serve a strategic purpose, enabling the firm to commit to raise its latter-period output. The strategic effect of inventories depends on the convexity of the cost function, on the cost of storage, and on the slopes of each firm's individual supply schedules. Our analysis encompasses general up-sloping supply schedules, with horizontal Bertrand supply schedules and vertical Cournot supply schedules as the two polar cases, via one continuous parameter which has a straightforward one-to-one correspondence with what has been broadly known as the conjectural variation parameter. A closed form of the strategic inventories is then established for a parametrised two-period n-firm linear oligopoly, which can be treated as a user-friendly package for empirical estimation as well as for regulatory policy making.
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Paper provided by University of Exeter, School of Business and Economics in its series Discussion Papers with number
00/17.
Length: 22 pages Date of creation: 2000 Date of revision: Handle: RePEc:fth:exetec:00/17
Contact details of provider: Postal: School of Business and Economics University of Exeter Streatham Court Rennes Drive Exeter EX4 4PU Phone: (01392) 263218 Fax: (01392) 263242 Web page: http://www.exeter.ac.uk/sobe/ More information through EDIRC
Find related papers by JEL classification: L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
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