Production targets
We analyze a dynamic model of quantity competition, where firms continuously adjust their quantity targets, but incur convex adjustment costs when they do so. Quantity targets serve as a partial commitment device and, in equilibrium, follow a hump-shaped pattern. The final equilibrium is more competitive than in the static analog. We then use data on monthly production targets of the Big Three U.S. auto manufacturers and show a similar empirical hump-shaped dynamic pattern. Taken together, this suggests that strategic considerations may play a role in setting auto production schedules, and that static models may misestimate the industry's competitiveness. Copyright (c) 2008, RAND.
Year of publication: |
2008
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Authors: | Caruana, Guillermo ; Einav, Liran |
Published in: |
RAND Journal of Economics. - RAND, ISSN 0741-6261. - Vol. 39.2008, 4, p. 990-1017
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Publisher: |
RAND |
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