Horizontal capacity sharing between asymmetric competitors

Debin Fang and Jiancheng Wang

Omega, 2020, vol. 97, issue C

Abstract: A common practice to address supply-demand mismatch is capacity sharing, whereby a firm possessing excessive capacity collaborates with its rival that is incapable of meeting captured demand. However, previous studies have seldom focused on the role of capacity sharing in shaping market competition. In this paper, we investigate coopetition strategies under two widely used contracting mechanisms of capacity sharing, namely, the linear transfer payment contracting mechanism and the revenue sharing contracting mechanism. In a model of two competitors with asymmetric capacities, we find that the larger firm becomes less aggressive in market competition and benefits more from capacity sharing. Competition between the firms will be softened by capacity sharing. Moreover, competition intensity is more likely to be higher under the linear transfer payment contracting mechanism than under the revenue sharing contracting mechanism, while it may be lower if the total capacities are slightly larger than the aggregate demand.

Keywords: Capacity sharing; Market competition; Linear transfer payment; Revenue sharing (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0305048319301100
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jomega:v:97:y:2020:i:c:s0305048319301100

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/supportfaq.cws_home/regional
https://shop.elsevie ... _01_ooc_1&version=01

DOI: 10.1016/j.omega.2019.102109

Access Statistics for this article

Omega is currently edited by B. Lev

More articles in Omega from Elsevier
Bibliographic data for series maintained by Catherine Liu ().