Dynamic duopoly with congestion effects
AbstractWe analyze duopolistic competition between horizontally differentiated firms selling durable goods or services subject to congestion. At each point of time, new customers buy one unit of the commodity from one of the firms, by comparing present prices and future congestion rates. We study the linear Markov equilibrium of this game which exists and is unique when firms are not too different. The existence of negative consumption externalities is shown to soften the price competition. Moreover, we show that the firm with the larger capacity has, at the steady state, a larger market share, a higher price, and a lower congestion rate. The price of an entrant decreases gradually after entry, while the price of the incumbent rises. The speed of convergence to the steady state is faster, the stronger is the congestion effect. On Ã©tudie la concurrence entre deux firmes qui vendent des biens ou des services durables sous la condition d'encombrement. Ã chaque instant, des clients nouveaux achÃ¨tent une unitÃ© du bien, en comparant les prix et les taux d'encombrement futur. On caractÃ©rise l'Ã©quilibre markovien de ce jeu. L'existence des externalitÃ©s nÃ©gatives rend la concurrence moins fÃ©roce. On montre que la firme qui a la plus grande capacitÃ© a, dans l'Ã©tat stationnaire, une plus grande part de marchÃ©, un prix plus Ã©levÃ©, et un taux d'encombrement plus faible. Le prix du bien d'une nouvelle firme diminue continuellement, tandis que celui de son rival en exercise monte. La vitesse de convergence est une fonction croissante de l'effet d'encombrement.
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Bibliographic InfoArticle provided by Elsevier in its journal International Journal of Industrial Organization.
Volume (Year): 22 (2004)
Issue (Month): 5 (May)
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Web page: http://www.elsevier.com/locate/inca/505551
Other versions of this item:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- D92 - Microeconomics - - Intertemporal Choice - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- L5 - Industrial Organization - - Regulation and Industrial Policy
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