Question
Recently Rolls Royce announced it would begin production of its first ultra luxury SUV named the Cullinan. Bentley, a rival luxury car manufacturer already produced
Recently Rolls Royce announced it would begin production of its first ultra luxury SUV named the Cullinan. Bentley, a rival luxury car manufacturer already produced their own version of an ultra-luxury SUV and have been doing so for a few years. Given the similarities in these SUVs in terms of quality, let's assume that the price they are able to sell each SUV for (i.e. the market clearing price) will depend on the total # of SUVs that are produced by both companies in 2022. Suppose you are working as a strategy consultant for Bentley. Explain in economic terms why it would be beneficial, if possible, for Bentley to be the first to announce a credible commitment to the # of SUVs they will make in 2022, before Rolls Royce is able to solidify their production plans on how many new SUVs they will manufacture? (Hint: Think about the Stackelberg model and why committing first will benefit Bentley compared to if they had made their announcement at the same time, or after Rolls Royce). Practically speaking, how can Bentley ensure that the commitment to its level of production is credible?
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