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Abstract

In this paper, we represent 'meet the competition' guarantees as the endogenous outcome of a non-cooperative game. We model the phenomenon by assuming that firms compete in supply schedules in a two-stage process. We assume that the choice of a negatively sloped supply schedule is costly. In particular, we use Cournot behavior as a benchmark. Cournot competition entails firms choosing a fixed quantity independent of the mar- ket price. We assume that it is costly for firms to deviate from a fixed output level. Our main result shows that in equilibrium, firms behave less competitively than the Cournot benchmark when they are able to commit to a degree of responsiveness in the first stage of the competition game.

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