Strategic Advance Production
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).
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