Endogenous Rationing, Price Dispersion, and Collusion in Capacity Constrained Supergames

Emmanuel Dechenaux and Dan Kovenock

Purdue University Economics Working Papers from Purdue University, Department of Economics

Abstract: This paper examines the feasibility of collusion in capacity constrained duopoly supergames. In each period firms simultaneously set a price-quantity pair specifying the price for the period and the maximum quantity the firm is willing to sell as this price. Under price-quantity competition firms are able to ration their output below capacity. For a wide range of capacity pairs, the equilibrium path providing the smaller firm with its highest stationary perfect equilibrium payoff requires that it undercut its rival s price and ration demand. Furthermore, for some capacities and discount factors supporting security level punishments, price shading and rationing arise everywhere on the set of stationary perfect equilibrium paths yielding (constrained) Pareto optimal payoffs. That is, price shading may not only be consistent with successful collusion, it may be a requirement of successful collusion.

Keywords: Bertrand-Edgeworth; Supergame; Collusion; Capacity (search for similar items in EconPapers)
JEL-codes: C73 D43 L13 L41 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2003
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Citations: View citations in EconPapers (14)

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Related works:
Journal Article: Endogenous rationing, price dispersion and collusion in capacity constrained supergames (2011)
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