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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Volume (Year): 39 (2008)
Issue (Month): 4 ()
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