A general model of price competition with soft capacity constraints

Marie-Laure Cabon-Dhersin () and Nicolas Drouhin ()
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Marie-Laure Cabon-Dhersin: CREAM - Centre de Recherche en Economie Appliquée à la Mondialisation - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université - IRIHS - Institut de Recherche Interdisciplinaire Homme et Société - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université

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Abstract: We propose a general model of oligopoly with firms relying on a two factor production function. In a first stage, firms choose a certain fixed factor level (capacity). In the second stage, firms compete on price, and adjust the variable factor to satisfy all the demand. When the factors are substitutable, the capacity constraint is " soft " , implying a convex cost function in the second stage. We show that there is a unique equilibrium prediction in pure strategies, whatever the returns to scale, characterized by a price that increases with the number of firms up to a threshold. The main propositions are established under the general assumption that the production function is quasi-concave but the paper provides a general methodology allowing the model to be solved numerically for special parametrical forms.

Keywords: capacity con-straint; convex cost; returns to scale; tacit collusion; limit pricing strategy; capacity con- straint; price competition (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-com and nep-mic
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01622930v3
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Citations: View citations in EconPapers (2)

Published in Economic Theory, inPress, ⟨10.1007/s00199-019-01203-w⟩

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Related works:
Journal Article: A general model of price competition with soft capacity constraints (2020)
Working Paper: A general model of price competition with soft capacity constraints (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-01622930

DOI: 10.1007/s00199-019-01203-w

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