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Strategic Advance Production

Author

Listed:
  • Sougata Poddar

    () (Department of Economics, National University of Singapore)

  • Dan Sasaki

    (Department of Economics, University of Exeter)

Abstract

Advance 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).

Suggested Citation

  • Sougata Poddar & Dan Sasaki, 2001. "Strategic Advance Production," Discussion Papers 0104, Exeter University, Department of Economics.
  • Handle: RePEc:exe:wpaper:0104
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    File URL: http://people.exeter.ac.uk/cc371/RePEc/dpapers/DP0104.pdf
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    Citations

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    Cited by:

    1. Poddar, Sougata & Sasaki, Dan, 2002. "The strategic benefit from advance production," European Journal of Political Economy, Elsevier, vol. 18(3), pages 579-595, September.
    2. repec:ebl:ecbull:v:12:y:2005:i:19:p:1-9 is not listed on IDEAS
    3. Jean-Christophe Poudou, 2005. "Storage and Competition in gas market," Economics Bulletin, AccessEcon, vol. 12(19), pages 1-9.

    More about this item

    Keywords

    inventory; storage costs; time preferences; pre-emption; strategic substitution.;

    JEL classification:

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

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