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Dynamic demand and noncompetitive intertemporal output adjustments

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  • Wirl, Franz
Abstract
This paper integrates dynamics on the demand and on the supply side, which are characteristic for many goods, in particular fuels, due to costly adjustments. Furthermore, firms often pursue a quantity strategy and decide on output adjustments, additional capacities, etc. instead of fixing prices, e.g., OPEC moved from posting prices to adjusting output in 1986. This paper provides a corresponding framework (surprisingly ignored in the literature) and derives intertemporal market equilibria: cooperative, and noncooperative in open loop and in Markov strategies. The equilibrium in Markov strategies is different, mostly opposite to the much discussed sticky price models, the qualitative properties are non-trivial and some of them are even surprising, e.g., increased demand sluggishness can raise supply.

Suggested Citation

  • Wirl, Franz, 2010. "Dynamic demand and noncompetitive intertemporal output adjustments," International Journal of Industrial Organization, Elsevier, vol. 28(3), pages 220-229, May.
    • Handle: RePEc:eee:indorg:v:28:y:2010:i:3:p:220-229
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    Cited by:

    1. Valentini, Edilio & Vitale, Paolo, 2019. "Uncertainty and Risk-aversion in a Dynamic Oligopoly with Sticky Prices," ETA: Economic Theory and Applications 285025, Fondazione Eni Enrico Mattei (FEEM).
    2. Colombo, Luca & Labrecciosa, Paola, 2013. "On the convergence to the Cournot equilibrium in a productive asset oligopoly," Journal of Mathematical Economics, Elsevier, vol. 49(6), pages 441-445.
    3. Vatter, Marc H., 2017. "OPEC's kinked demand curve," Energy Economics, Elsevier, vol. 63(C), pages 272-287.
    4. Colombo, Luca & Labrecciosa, Paola, 2013. "Oligopoly exploitation of a private property productive asset," Journal of Economic Dynamics and Control, Elsevier, vol. 37(4), pages 838-853.
    5. Wirl, Franz, 2015. "Output adjusting cartels facing dynamic, convex demand under uncertainty: The case of OPEC," Economic Modelling, Elsevier, vol. 44(C), pages 307-316.
    6. Charalambos Christou, 2015. "A model of dynamic competition with sticky prices," Discussion Paper Series 2015_05, Department of Economics, University of Macedonia, revised Nov 2015.

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