{"title":"Duopoly price competition with limited capacity","authors":"A. Bërdëllima","doi":"10.1007/s40505-020-00198-1","DOIUrl":null,"url":null,"abstract":"<p>We study a variation of the duopoly model by Kreps and Scheinkman (1983). Firms limited by their capacity of production engage in a two stage game. In the first stage they commit to levels of production not exceeding their capacities which are then made common knowledge. In the second stage after production has taken place firms simultane- ously compete in prices. Solution of this sequential game shows that the unique Cournot equilibrium outcome as in Kreps and Scheinkman is not always guaranteed. However the Cournot outcome is still robust in the sense that given sufficiently large capacities this equilibrium holds. If capacities are sufficiently small, firms decide to produce at their full capacity and set a price which clears the market at the given level of output.</p>","PeriodicalId":40852,"journal":{"name":"Economic Theory Bulletin","volume":"1 1","pages":""},"PeriodicalIF":0.4000,"publicationDate":"2021-02-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Economic Theory Bulletin","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.1007/s40505-020-00198-1","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q4","JCRName":"ECONOMICS","Score":null,"Total":0}
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Abstract
We study a variation of the duopoly model by Kreps and Scheinkman (1983). Firms limited by their capacity of production engage in a two stage game. In the first stage they commit to levels of production not exceeding their capacities which are then made common knowledge. In the second stage after production has taken place firms simultane- ously compete in prices. Solution of this sequential game shows that the unique Cournot equilibrium outcome as in Kreps and Scheinkman is not always guaranteed. However the Cournot outcome is still robust in the sense that given sufficiently large capacities this equilibrium holds. If capacities are sufficiently small, firms decide to produce at their full capacity and set a price which clears the market at the given level of output.
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The purpose of Economic Theory Bulletin is to provide an outlet for research in all areas of Economics based on rigorous theoretical reasoning. The Economic Theory Bulletin together with Economic Theory are the official journals of the Society for the Advancement of Economic Theory.
The Economic Theory Bulletin is intended to publish:
1. Short papers/notes of substantial interest. Content is subject to the same standards as Economic Theory: research in all areas of economics based on rigorous theoretical reasoning and on topics in mathematics that are supported by the analysis of economic problems. Published articles contribute to the understanding and solution of substantive economic problems. Theory papers with the substance and style for other journals that specialize in short papers are welcomed. Corollaries of already known results in the literature are not appropriate for publication.
2. Survey papers that clearly picture the basic ideas at work in the area, the essential technical apparatus that is used and the central questions that remain open.
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