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Procedures for Computing Equilibria of the Oligopoly Expansion Game under Predetermined Multi-Period Pricings. Part 2 : Second-Lowest Marginal-Cost Pricing

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  • WEI, Jing-Yuan

    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

  • SMEERS , Yves

    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

Abstract

A two-stage game is used in this paper to model a long-run market with spatially separated producers and with multi-period demands: first, firms simultaneously and independently invest their capacities; second, after capacities are set up in the first stage and made public, firms engage in a short-run price competition, and the second lowest marginal cost is assumed to he the equilibrium price of the competition. A fixed point procedure is formulated for computing the equilibria of the game. Each cycle of the procedure solves successively a Nash-Cournot model and a Hobbs model. It is shown that when the peak supply is higher than the off-peak supply or the peak prices are upper bounded not higher than the Cournot prices, the fixed point of the procedure constitutes an equilibrium of the two-stage game. A minor modification of the procedure is used to model a long-run oligopoly where potential entrants exist. A market organized by three European countries is simulated by the procedure.

Suggested Citation

  • WEI, Jing-Yuan & SMEERS , Yves, 1996. "Procedures for Computing Equilibria of the Oligopoly Expansion Game under Predetermined Multi-Period Pricings. Part 2 : Second-Lowest Marginal-Cost Pricing," LIDAM Discussion Papers CORE 1996022, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:1996022
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    Cited by:

    1. Cardell, Judith B. & Hitt, Carrie Cullen & Hogan, William W., 1997. "Market power and strategic interaction in electricity networks," Resource and Energy Economics, Elsevier, vol. 19(1-2), pages 109-137, March.
    2. A. Bigano & S. Proost & J. Van Rompuy, 2000. "Alternative Environmental Regulation Schemes for the Belgian Power Generation Sector," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 16(2), pages 121-160, June.

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