Pre-emptive Production and Market Competitiveness in Oligopoly with Private Information

Abstract

We investigate a firm's pre-emptive behavior by comparing Cournot competition and Stackelberg games with one leader and multiple followers, where each firm has access to private information on stochastic demand. We show that the firm prefers pre-emptive quantity choice (Stackelberg leader) to simultaneous quantity choice (Cournot firm) if and only if the firm is ignorant of the market size comparative to the other firm. The firm's decision in terms of production timing is always detrimental to producer surplus in the industry. It is beneficial to consumer surplus in duopoly competition, but detrimental when there are many competitors in the market.