EXCESS CAPACITY IN POST ENTRY COURNOT COMPETITION

Jacques Thépot

International Game Theory Review (IGTR), 2002, vol. 04, issue 02, 101-118

Abstract: This paper discusses the occurrence of excess capacity in a post entry duopoly continuous time model when capacity building is irreversible. It is proved that the Cournot–Nash strategies used by firms may induce persistent capacity for the established firm. In the linear demand case, the investment periods of the established firm and the entrant are analytically derived. These results generalize findings of Spulber (1981). A comparative test in terms of rational expectations of quantities is designed to characterize excess capacity occurrence.

Keywords: Dynamics duopoly; excess capacity; JEL classification code C73; JEL classification code D43 (search for similar items in EconPapers)
JEL-codes: B4 C0 C6 C7 D5 D7 M2 (search for similar items in EconPapers)
Date: 2002
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DOI: 10.1142/S0219198902000586

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