Pricing behaviour at capacity constrained facilities

Jesper Fredborg Huric Larsen ()

MPRA Paper from University Library of Munich, Germany

Abstract: Entry of new firms can be difficult or even impossible at capacity constrained facilities, despite the actual cost of entering is low. Using a game theoretic model of incumbent firms’ pricing behaviour under these conditions, it is found that under the assumption of Bertrand competition and firms having different costs, the optimal pricing behaviour imply price stickiness and upward pricing. The findings further suggest a competitive behaviour of incumbents of disposing weaker opponents only if, it leads to weaker competitors entering the market and to use weaker opponents to shelter the incumbent. The results propose a new explanation of the mixed empirical findings on incumbent pricing to entry and suggest that competition authorities should use an effect-based approach to detect the behaviour.

Keywords: Pricing behaviour; capacity constrained; congestion; game theory; competition policy; regulation; games of incomplete and asymmetric information; Bayesian equilibrium (search for similar items in EconPapers)
JEL-codes: D21 D43 L11 (search for similar items in EconPapers)
Date: 2012-02-01
New Economics Papers: this item is included in nep-com and nep-tre
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