Multiregional Oligopoly with Capacity Constraints

Humoud Alsabah (), Benjamin Bernard (), Agostino Capponi (), Garud Iyengar () and Jay Sethuraman ()
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Humoud Alsabah: Department of Industrial Engineering and Operations Research, Columbia University, New York, New York 10027
Benjamin Bernard: Department of Economics, National Taiwan University, Taipei City, 10617 Taiwan
Agostino Capponi: Department of Industrial Engineering and Operations Research, Columbia University, New York, New York 10027
Garud Iyengar: Department of Industrial Engineering and Operations Research, Columbia University, New York, New York 10027
Jay Sethuraman: Department of Industrial Engineering and Operations Research, Columbia University, New York, New York 10027

Management Science, 2021, vol. 67, issue 8, 4789-4808

Abstract: We develop a model of Cournot competition between capacity-constrained firms that sell a single good to multiple regions. We provide a novel characterization for the unique equilibrium allocation of the good across regions and design an algorithm to compute it. We show that a reduction in transportation costs by a firm may negatively impact the profit of all firms and reduce aggregate consumer surplus if such a firm is capacity constrained. Our results imply that policies promoting free trade may have unintended consequences and reduce aggregate welfare in capacity-constrained industries.

Keywords: Cournot competition; oligopoly; networks; capacity constraints; noncooperative games; welfare (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:67:y:2021:i:8:p:4789-4808

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