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.
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