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Firms’ timing of production with heterogeneous consumers

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  • Cong Pan
Abstract
I revisit endogenous timing in a quantity‐setting duopoly game. In the basic model, I show that given strong heterogeneity in consumers’ willingness to pay (WTP) and a moderately small consumer segment with low WTP, sequential moving outcomes can appear in equilibrium with the follower enjoying second‐mover advantage. Owing to consumer heterogeneity in WTP, there is a local property that a firm's aggressive behaviour may lead to a competitor responding more aggressively. Hence, the sequential moves can restrict firms’ total outputs to avoid a price collapse, and result in firms’ strategic choices that Pareto dominate those under the simultaneous move. I further generalize my results and show that although firms compete in quantity, under some conditions of the demand function, features of strategic complements can appear. Le timing de la production des firmes quand les consommateurs sont hétérogènes. On réexamine le timing endogène dans un jeu de duopole où les concurrents s’ajustent par les quantités. Dans le modèle de base, on montre que, compte tenu de la forte hétérogénéité de la volonté de payer (VDP) des consommateurs, et du fait que le segment des consommateurs pour laquelle la VDP est faible est modérément petit, des choix séquentiels de production peuvent émerger en équilibre avec pour conséquence que celui qui suit a l’avantage d’être le second. Compte tenu de l’hétérogénéité dans la VDP, le comportement agressif d’une firme peut entraîner le concurrent à répondre plus agressivement. Des mouvements séquentiels peuvent limiter la production totale des firmes pour éviter que le prix s’effondre, et résulter en des choix stratégiques des firmes qui dominent au sens de Pareto ceux qui émergeraient de mouvements simultanés. On généralise ces résultats et on montre que même si les firmes se concurrencent par les quantités, sous certaines conditions de la fonction de demande, certains éléments de complémentarité stratégique peuvent émerger.

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  • Cong Pan, 2018. "Firms’ timing of production with heterogeneous consumers," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 51(4), pages 1339-1362, November.
    • Handle: RePEc:wly:canjec:v:51:y:2018:i:4:p:1339-1362
    DOI: 10.1111/caje.12360
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    References listed on IDEAS

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