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Strategic Inventories in Two-period Oligopoly

Author

Listed:
  • Mollgaard, H.P.
  • Poddar, S.
  • Sasaki, D.

Abstract

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.

Suggested Citation

  • Mollgaard, H.P. & Poddar, S. & Sasaki, D., 2000. "Strategic Inventories in Two-period Oligopoly," Discussion Papers 0017, University of Exeter, Department of Economics.
    • Handle: RePEc:exe:wpaper:0017
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    Citations

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    Cited by:

    1. Breton, Michèle & Kharbach, Mohammed, 2008. "The welfare effects of unbundling gas storage and distribution," Energy Economics, Elsevier, vol. 30(3), pages 732-747, May.
    2. Fabio Antoniou & Raffaele Fiocco, 2019. "Strategic inventories under limited commitment," RAND Journal of Economics, RAND Corporation, vol. 50(3), pages 695-729, September.
    3. Krishnan Anand & Ravi Anupindi & Yehuda Bassok, 2008. "Strategic Inventories in Vertical Contracts," Management Science, INFORMS, vol. 54(10), pages 1792-1804, October.
    4. Jean-Paul Chavas, 2008. "On Storage Behavior Under Imperfect Competition, with Application to the American Cheese Market," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 33(4), pages 325-339, December.
    5. Laure Durand-Viel, 2007. "Strategic Storage and Market Power in the Natural Gas Market," Energy and Environmental Modeling 2007 24000013, EcoMod.
    6. Pınar Keskinocak & Kasarin Chivatxaranukul & Paul M. Griffin, 2008. "Strategic inventory in capacitated supply chain procurement," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 29(1), pages 23-36.
    7. Jean-Christophe Poudou & François Mirabel & Edmond Baranes, 2007. "Concurrence et stockage stratégique sur le marché gazier," Économie et Prévision, Programme National Persée, vol. 178(2), pages 25-40.
    8. Chavas, Jean-Paul, 2006. "On Storage Behavior Under Imperfect Competition," Working Papers 201527, University of Wisconsin-Madison, Department of Agricultural and Applied Economics, Food System Research Group.

    More about this item

    Keywords

    SUPPLY ; STOCKS ; STRATEGIC PLANNING;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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