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Demand fluctuations and capacity utilization under duopoly

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Author Info
Jean J. Gabszewicz (CORE, Universite Catholique de Louvain, Voie du Roman Pays 34, B-1348 Louvain-la-Neuve, BELGIUM)
Sougata Poddar (CORE, Universite Catholique de Louvain, Voie du Roman Pays 34, B-1348 Louvain-la-Neuve, BELGIUM)

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Abstract

This paper studies the impact of uncertain demand on firms' capacity decisions when they operate in an oligopolistic environment. We define a two-stage game where firms choose capacity in the first stage without knowing which state of Nature is going to realize, and output levels in the second, knowing which state is realized. We prove the existence of a symmetric subgame perfect equilibrium at which firms are in excess capacity compared with the capacity they would choose in the Cournot certainty equivalent game.

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Publisher Info
Article provided by Springer in its journal Economic Theory.

Volume (Year): 10 (1997)
Issue (Month): 1 ()
Pages: 131-146
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Handle: RePEc:spr:joecth:v:10:y:1997:i:1:p:131-146

Note: Received: May 17, 1996; revised version July 31, 1996
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Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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  1. Christou, Charalambos & Kotseva, Rossitsa & Vettas, Nikolaos, 2007. "Pricing, Investments and Mergers with Intertemporal Capacity Constraints," CEPR Discussion Papers 6433, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Dietrich Franz & List Christian, 2009. "Propositionwise judgment aggregation," Research Memoranda 020, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
  3. Anette Boom & Stefan Buehler, 2007. "Restructuring Electricity Markets when Demand is Uncertain: Effects on Capacity Investments, Prices and Welfare," CIE Discussion Papers 2007-09, University of Copenhagen. Department of Economics. Centre for Industrial Economics. [Downloadable!]
  4. Guy Meunier & Jean-Pierre Ponssard, 2008. "Capacity decisions with demand fluctuations and carbon leakage," Working Papers hal-00347650_v1, HAL. [Downloadable!]
  5. Veronika Grimm & Gregor Zoettl, 2006. "Access to Commitment Devices Reduces Investment Incentives in Oligopoly," Working Paper Series in Economics 25, University of Cologne, Department of Economics. [Downloadable!]
  6. Charalambos Christou & Rossitsa Kotseva & Nikolaos Vettas, 2009. "Pricing, Investments and Mergers with Intertemporal Capacity Constraints," Discussion Paper Series 2009_06, Department of Economics, University of Macedonia, revised Mar 2009. [Downloadable!]
  7. Veronika Grimm & Gregor Zoettl, 2006. "Capacity Choice under Uncertainty: The Impact of Market Structure," Working Paper Series in Economics 23, University of Cologne, Department of Economics. [Downloadable!]
  8. Stefan Bühler & Anton Burger & Robert Ferstl, 2008. "The Investment Effects of Price Caps under Imperfect Competition: A Note," University of St. Gallen Department of Economics working paper series 2008 2008-17, Department of Economics, University of St. Gallen. [Downloadable!]
  9. Nicolas Gruyer, 2006. "Quantity precommitment, Cournot outcome and asymmetric capacity costs," Economics Working Papers 04, LEEA (air transport economics laboratory), ENAC (french national civil aviation school). [Downloadable!]
  10. Gary Biglaiser & Nikolaos Vettas, 2007. "Dynamic price competition with capacity constraints and strategic buyers," Working Papers 24, Portuguese Competition Authority. [Downloadable!]
  11. Neuhoff, K. & Ehrenmann, A. & Butler, L. & Cust, J. & Hoexter, H. & Keats, K. & Kreczko,A. & Sinden, G., 2006. "Space and Time: Wind in an Investment Planning Model," Cambridge Working Papers in Economics 0620, Faculty of Economics, University of Cambridge. [Downloadable!]
    Other versions:
  12. de Frutos, Maria-Angeles & Fabra, Natalia, 2007. "Endogenous Capacities and Price Competition: The Role of Demand Uncertainty," CEPR Discussion Papers 6096, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  13. Nicolas Gruyer & Kevin Guittet, 2008. "A model of airport slot allocation with posted prices," Economics Working Papers 05, LEEA (air transport economics laboratory), ENAC (french national civil aviation school). [Downloadable!]
  14. Debora Di Gioacchino, 2004. "Cost Padding In Regulated Markets With Demand Uncertainty," Working Papers 72, Sapienza University of Rome, Department of Public Economics. [Downloadable!]
  15. Debora Di Gioacchino, 2008. "Strategic technology choice in regulated markets with demand uncertainty," Empirica, Springer, vol. 35(2), pages 145-164, April. [Downloadable!] (restricted)
  16. Biglaiser, Gary & Vettas, Nikolaos, 2004. "Dynamic Price Competition with Capacity Constraints and Strategic Buyers," CEPR Discussion Papers 4315, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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