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Preemption in Capacity and Price Determination - A Study of Endogenous Timing of Decisions for Homogeneous Markets

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  • Sandra Güth
  • Werner Güth

Abstract

Endogenous timing can help to derive the time structure of decision making instead of assuming it as exogenously given. In our study we consider a homogeneous market where, like in the model of Kreps and Scheinkman (1983), sellers determine "sales capacities" before prices. Sellers must serve customers, but at higher costs when demand exceeds "capacitiy". Our model allows for preemption in "capacity" as well as in price determination. Since preemption means to decide before the random choice of cost parameters reflecting the stochastic nature of (excess) "capacity" costs, preemptive commitments are no obviously better timing dispositions.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 309.

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Date of creation: 2000
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Handle: RePEc:ces:ceswps:_309

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  1. van Damme, Eric & Hurkens, Sjaak, 1999. "Endogenous Stackelberg Leadership," Games and Economic Behavior, Elsevier, Elsevier, vol. 28(1), pages 105-129, July.
  2. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, December.
  3. Vital Anderhub & Werner Güth & Ulrich Kamecke & Hans-Theo Normann, 2003. "Capacity Choices and Price Competition in Experimental Markets," Experimental Economics, Springer, Springer, vol. 6(1), pages 27-52, June.
  4. Spencer, Barbara J. & Brander, James A., 1992. "Pre-commitment and flexibility : Applications to oligopoly theory," European Economic Review, Elsevier, Elsevier, vol. 36(8), pages 1601-1626, December.
  5. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
  6. Sadanand, Asha & Sadanand, Venkatraman, 1996. "Firm Scale and the Endogenous Timing of Entry: a Choice between Commitment and Flexibility," Journal of Economic Theory, Elsevier, Elsevier, vol. 70(2), pages 516-530, August.
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