Sequential Capacity and Price Choices in a Duopoly Model with Demand Uncertainty
AbstractThis paper analyzes the effect of demand uncertainty in a two-stage duopoly model where firms first choose capacity then price, and shows that the equilibrium is sensitive to the decision structure of the model. If both the capacity choice and the price choice are made simultaneously, no pure strategy equilibrium exists. If prices are chosen sequentially, the pricing stage has two pure strategy equilibria, but only for one of these does a pure strategy equilibrium of the full game exist. Finally, if both capacities and prices are chosen sequentially, a pure strategy equilibrium with strong first mover advantages exists.
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Bibliographic InfoPaper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 89-09.
Length: 23 pages
Date of creation: Mar 1989
Date of revision:
Publication status: Published in: Journal of Economics/Zeitschrift für Nationalokonomie, 1990, 51(2) pp 121-144
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market structure; industrial organization and corporate strategy;
Other versions of this item:
- Morten Hviid, 1990. "Sequential capacity and price choices in a duopoly model with demand uncertainty," Journal of Economics, Springer, vol. 51(2), pages 121-144, June.
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