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Duopoly competitions with capacity constrained input

Pu-yan Nie and You-hua Chen

Economic Modelling, 2012, vol. 29, issue 5, 1715-1721

Abstract: This paper focuses on the duopoly substitutability product with an upstream input subjected to capacity constraints. The effects of capacity constraints are captured. Combining competition effect with constraint effect, some interesting conclusions are reached. First, the relationship between capacity constraints and firm size is addressed. We argue that the capacity constraints reduce market size difference and price difference under Cournot. Second, under the Stackelberg case, the existence of solution is proved, and Stackelberg competitions enlarge firm-size difference and price difference if the more efficient firm plays the leading position. When the weaker firm plays the leading position, the conclusions depend on the total capacity. Finally, under the Stackelberg case, when the stronger firm plays the leading position, the firm-size difference and price difference decrease with total input under capacity constraints, which is contrary to the conclusions under Cournot competitions.

Keywords: Capacity constraints; Cournot competition; Firm-size difference; Stackelberg; Price dispersion (search for similar items in EconPapers)
JEL-codes: C61 C72 D4 J3 L1 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
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DOI: 10.1016/j.econmod.2012.05.022

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