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Demand Fluctuations and Capacity Utilization under Duopoly

Author

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  • GABSZEWICZ, Jean J.

    (CORE, Université catholique de Louvain, B-1348 Louvain-la-Neuve, Belgium)

  • PODDAR , Sougata

    (CORE, Université catholique de Louvain, B-1348 Louvain-la-Neuve, Belgium)

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.

Suggested Citation

  • GABSZEWICZ, Jean J. & PODDAR , Sougata, 1995. "Demand Fluctuations and Capacity Utilization under Duopoly," LIDAM Discussion Papers CORE 1995051, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:1995051
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    File URL: https://sites.uclouvain.be/core/publications/coredp/coredp1995.html
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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - 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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