Strategic Advance Production

Paper number: 01/04

Paper date: 2001

Year: 2001

Paper Category: Working Paper


Sougata Poddar and Dan Sasaki


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 opponents even when if it is technologically more costly than on-spot production, and if 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 charateristics of the concerned products i.e., substitutes or complements .

Strategic Advance Production Strategic Advance Production