Capacity-Constrained Price Competition when Unit Costs Differ

Raymond Deneckere and Dan Kovenock
Additional contact information
Raymond Deneckere: University of Wisconsin

Industrial Organization from University Library of Munich, Germany

Abstract: This paper characterizes the set of NASH equilibria in a price setting duopoly in which firms have limited capacity, and in which unit costs of production up to capacity may differ. Assuming concave revenue and efficient rationing, we show that the case of different unit costs involves a tractable generalization of the methods used to analyze the case of identical costs. However, the supports of the two firms' equilibrium price distributions need no longer be connected and need not coincide. In addition, the supports of the equilibrium price distributions need no longer be continuous in the underlying parameters of the model. Two applications of our characterization are pursued. In the Kreps-Scheinkman model of capacity choice followed by Bertrand-Edgeworth price competition we show that, unlike in the case of identical costs, Cournot equilibrium capacity levels need not arise as subgame-perfect equilibria. The low-cost firm has greater incentive to price its rival out of the market than exists under Cournot behavior. Our second application is to the analysis of the effects of tariffs and quotas in a model in which a domestic market is supplied by a price setting duopoly consisting of a domestic and a foreign firm. We obtain a strong nonequivalence result.

JEL-codes: L (search for similar items in EconPapers)
Date: 1994-11-14, Revised 1994-11-15
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://econwpa.ub.uni-muenchen.de/econ-wp/io/papers/9411/9411001.pdf (application/pdf)
https://econwpa.ub.uni-muenchen.de/econ-wp/io/papers/9411/9411001.ps.gz (application/postscript)

Related works:
Working Paper: Capacity Constrained Price Competition when Unit Costs Differ (1994)
Working Paper: Capacity-Constrained Price Competition When Unit Costs Differ (1988)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpio:9411001

Access Statistics for this paper

More papers in Industrial Organization from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ( this e-mail address is bad, please contact ).