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Capacity precommitment and price competition yield cournot outcomes

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  • Moreno, Diego
  • Ubeda, Luis

Abstract

We study an industry of a homogeneous good where n firms with identical technology compete by first building capacity, and then, after observing the capacity decisions, choosing a "reservation price" at which they are willing to sell their entire capacities. We show that every pure strategy equilibrium yields the Cournot outcome, and that the Cournot outcome can be sustained by a pure strategy subgame perfect equilibrium.

Suggested Citation

  • Moreno, Diego & Ubeda, Luis, 2001. "Capacity precommitment and price competition yield cournot outcomes," UC3M Working papers. Economics we014408, Universidad Carlos III de Madrid. Departamento de Economía.
    • Handle: RePEc:cte:werepe:we014408
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    3. Moldovanu, Benny & Sela, Aner & Shi, Xianwen, 2008. "Competing auctions with endogenous quantities," Journal of Economic Theory, Elsevier, vol. 141(1), pages 1-27, July.
    4. F. Delbono & L. Lambertini, 2015. "Cournot Retrouv under Price or Supply Function Competition," Working Papers wp1003, Dipartimento Scienze Economiche, Universita' di Bologna.
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    6. Mariel Leal & Arturo Garcia & Sang‐Ho Lee, 2019. "Excess Burden of Taxation and Environmental Policy Mix with a Consumer‐Friendly Firm," The Japanese Economic Review, Japanese Economic Association, vol. 70(4), pages 517-536, December.
    7. de Frutos, María-Ángeles & Fabra, Natalia, 2011. "Endogenous capacities and price competition: The role of demand uncertainty," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 399-411, July.
    8. Ferreira, José Luis, 2014. "Capacity precommitment, price competition and forward markets," Economics Letters, Elsevier, vol. 122(2), pages 362-364.
    9. Aray, Henry & Gardeazabal, Javier, 2010. "Going multinational under exchange rate uncertainty," Journal of International Money and Finance, Elsevier, vol. 29(6), pages 1171-1191, October.
    10. Lemus, Ana B. & Moreno, Diego, 2020. "Strategic incentives for keeping one set of books under the Arm’s Length Principle," Mathematical Social Sciences, Elsevier, vol. 106(C), pages 78-90.
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    12. Sherrill Shaffer, 2008. "Earnings Valuation And Sources Of Growth," CAMA Working Papers 2008-32, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    13. Breitmoser, Yves, 2012. "On the endogeneity of Cournot, Bertrand, and Stackelberg competition in oligopolies," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 16-29.
    14. Michał Król, 2017. "On the equivalence of quantity competition and supply function competition with sunk costs," International Journal of Game Theory, Springer;Game Theory Society, vol. 46(2), pages 475-486, May.
    15. Michal Król, 2012. "‘Everything must go!’- Cournot as a Stable Convention within Strategic Supply Function Competition," Economics Discussion Paper Series 1217, Economics, The University of Manchester.
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    17. Lemus Torres, Ana Belén, 2011. "Strategic incentives for kepping one set of books under the Arm's Length Principle," UC3M Working papers. Economics we1135, Universidad Carlos III de Madrid. Departamento de Economía.

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