Capacity precommitment and price competition yield the Cournot outcome

Capacity precommitment and price competition

We introduce a simple model of oligopolistic competition where firms first build capacity, and then, after observing the capacity decisions, choose a reservation price at which they are willing to supply their capacities. This model describes many markets more realistically than Kreps and Scheinkman’s (1983) model. We show that in this new model every pure strategy equilibrium yields the Courno...

Quantity precommitment in an experimental oligopoly market

The paper describes an experiment designed to test if the equilibrium in a market characterized by capacity precommitment followed by price competition, as in the Kreps and Scheinkman model, conforms with the outcome predicted by that model, which is that capacities coincide with Cournot output levels. Sessions were run with capacity precommitment in inexperienced and experienced triopoly marke...

Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes

Bertrand’s model of oligopoly, which gives per$ectly competitive outcomes, assumes lhat: (1) there is competition overprices and (2) production follow dle reulizafion of demand. We show that both of ~heseassumption are required. Moreprecisely, consider a two-stage oligopoly game where,~rst, there is simultaneous produc~ion,and, second, ajierproduction levels are made public, there i~price compe...

Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes: a Case with Product Differentiation

Capacity Constaint, Price Discrimination, and Oligopoly

In the presence of market power in oligopolistic environment, price discrimination is a natural phenomenon. Surprisingly this setting has not been analyzed in depth in the literature. In contrast with existing literature, e.g., Hazledine (2006) and Kutlu (2009), we consider quantity setting games where …rms compete in two stages. In the …rst stage …rms decide on the choice of capacity and in th...