Cournot Duopoly With Multi-period Competition: Inventory as a Coordination Device |
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Authors: | Toshihiro Matsumura |
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Affiliation: | University of Tokyo |
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Abstract: | This paper analyses a Cournot duopoly model with finitely repeated competition. Each firm is allowed to hold inventories for a period. When there are more than two periods, inventory-holdings encourage firms to take collusive actions. By holding large inventories, a firm can commit to large sales in the next period, giving inventories a strategic value. When a firm deviates from collusion, the strategic value of inventories allows the non-defecting firm to become the Stackelberg leader in future markets, forcing the defecting firm to become the Stackelberg follower. Collusive sales can be attained with this threat of punishment. |
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