Advance Production, Inventory, and Asymmetric Cournot-Nash Equilibrium

Advance production serves as a means of quantity commitment. Therefore, a quantity-competing firm 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. This paper shows that 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, even when the firms are a priori symmetric.