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Dynamic Price Competition with Capacity Constraints and Strategic Buyers

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  • Biglaiser, Gary
  • Vettas, Nikolaos
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    Abstract

    We analyse a set of simple dynamic models where sellers are capacity constrained over the length of the model. Buyers act strategically in the market, knowing that their purchases may affect future prices. The model is examined when there are single and multiple buyers, with both linear and non-linear pricing. We find that, in general, there are only mixed strategy equilibria and that sellers get a rent above the amount needed to satisfy the market demand that the other seller cannot meet. Buyers would like to commit not to buy in the future. Furthermore, sellers’ market shares tend to be maximally asymmetric with high probability, even though they are ex ante identical.

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    Bibliographic Info

    Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4315.

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    Date of creation: Mar 2004
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    Handle: RePEc:cpr:ceprdp:4315

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    Related research

    Keywords: bilateral oligopoly; capacity constraints; linear and non-linear pricing;

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    Cited by:
    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.
    2. Fabian Bergès & Claire Chambolle, 2009. "Threat of Exit as a Source of Bargaining Power," Discussion Papers (REL - Recherches Economiques de Louvain) 2009033, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    3. van den Berg, Anita & Bos, Iwan & Herings, P. Jean-Jacques & Peters, Hans, 2012. "Dynamic Cournot duopoly with intertemporal capacity constraints," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 174-192.
    4. Kalyan Talluri & Víctor Martínez de Albéniz, 2010. "Dynamic price competition with fixed capacities," Economics Working Papers 1205, Department of Economics and Business, Universitat Pompeu Fabra.
    5. Sakellaris, Kostis, 2010. "Modeling Electricity Markets as Two-Stage Capacity Constrained Price Competition Games under Uncertainty," MPRA Paper 23317, University Library of Munich, Germany.
    6. Berg Anita H.J. van den & Herings P. Jean-Jacques & Peters Hans J.M., 2009. "Dynamic Duopoly with Intertemporal Capacity Constraints," Research Memorandum 018, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).

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