Rational Rationing in Stackelberg Equilibria
AbstractIn the Contect of Duopoly Theory with Differentiated Products, Economic Theorists Usually Consider the Price As the Choice Variable for the Firms. Given the Prices, the Respective Quantities Demanded and Profits Can Be Computed. in This Paper, We Consider Strategy Spaces Consisting of Both Price and Production Variables. Two Models Are Developped: in One Model, the Firm Will Choose Its Price and the Number of Consumers It Will Serve (A Serving Capacity) While, in the Other Model, It Will Choose the Price and the Total Quantity It Will Produce (A Production Capacity). We Are Particularly Concerned in This Paper with the Existence of Endogenously-Determined Rationing in a Leader-Follower Duopoly Framework. We Show That Rationing Is Always (May Be) Present in Equilibrium When Strategies Are Expressed in Terms of the Price and the Production (Serving) Capacity. Moreover, Only the Leader Or First-Mover Will Or May Engage in Rationing. Rationing Appears Therefore As a Strategic Variable. What May Appear As a Fixed Price Equilibrium Or a Disequilibrium Turns Out in This Case to Be a Strategic Equilibrium with Completely Flexible Prices. an Example Is Worked Out.
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Bibliographic InfoArticle provided by MIT Press in its journal Quarterly Journal of Economics.
Volume (Year): 103 (1988)
Issue (Month): 2 (May)
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