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Do Firms Sell What They Produce or Produce What They Sell?

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  • Kurt Annen

    (Department of Economics and Finance, University of Guelph)

Abstract

In economic models, "sales equals production" is typically treated as an identity and not as an equilibrium outcome. This distinction, however, matters when production is sequential because of off-equilibrium path behavior. This paper shows that the first mover advantage in the standard Stackelberg oligopoly game may be reduced when "sales equals production" is no longer treated as an identity. Moving rst does not per se produce a strategic advantage. It is only first moves that are suciently costly that produce this advantage. With costless production, the advantage disappears completely and the Cournot outcome is obtained.

Suggested Citation

  • Kurt Annen, 2016. "Do Firms Sell What They Produce or Produce What They Sell?," Working Papers 1606, University of Guelph, Department of Economics and Finance.
    • Handle: RePEc:gue:guelph:2016-06
    as

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    File URL: http://www.uoguelph.ca/economics/repec/workingpapers/2016/2016-06.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Oligopoly; Stackelberg competition; sales versus production;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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