Demand Fluctuations and Capacity Utilization under Duopoly

Jean Gabszewicz and Sougata Poddar (sougata-poddar@uiowa.edu)

No 1995051, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: This paper studies the impact of uncertain demand on firms' capacity decisions when they operate in an oligopolistic environment. We define a two-stage game where firms choose capacity in the first stage without knowing which state of Nature is going to realize, and output levels in the second, knowing which state is realized. We prove the existence of a symmetric subgame perfect equilibrium at which firms are in excess capacity compared with the capacity they would choose in the Cournot certainty equivalent game.

Date: 1995-09-01
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Related works:
Journal Article: Demand fluctuations and capacity utilization under duopoly (1997)
Working Paper: Demand fluctuations and capacity utilization under duopoly (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:1995051

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