Advanced Search

Papers Articles Authors Institutions Data (FRED®)

Abstract

This paper characterizes the set of NASH equilibria in a price setting duopoly in which firms have limited capacity, and in which unit costs of production up to capacity may differ. Assuming concave revenue and efficient rationing, we show that the case of different unit costs involves a tractable generalization of the methods used to analyze the case of identical costs. However, the supports of the two firms' equilibrium price distributions need no longer be connected and need not coincide. In addition, the supports of the equilibrium price distributions need no longer be continuous in the underlying parameters of the model. Two applications of our characterization are pursued. In the Kreps-Scheinkman model of capacity choice followed by Bertrand-Edgeworth price competition we show that, unlike in the case of identical costs, Cournot equilibrium capacity levels need not arise as subgame-perfect equilibria. The low-cost firm has greater incentive to price its rival out of the market than exists under Cournot behavior. Our second application is to the analysis of the effects of tariffs and quotas in a model in which a domestic market is supplied by a price setting duopoly consisting of a domestic and a foreign firm. We obtain a strong nonequivalence result.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://128.118.178.162/eps/io/papers/9411/9411001.pdf
Download Restriction: no

---

File URL: http://128.118.178.162/eps/io/papers/9411/9411001.ps.gz
Download Restriction: no

Bibliographic Info

Paper provided by EconWPA in its series Industrial Organization with number 9411001.

as HTML HTML with abstract plain text plain text with abstract BibTeX RIS (EndNote, RefMan, ProCite) ReDIF in new window

Length:
Date of creation: 14 Nov 1994
Date of revision: 15 Nov 1994
Handle: RePEc:wpa:wuwpio:9411001

Contact details of provider:
Web page: http://128.118.178.162

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

• L - Industrial Organization

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as HTML HTML with abstract plain text plain text with abstract BibTeX RIS (EndNote, RefMan, ProCite) ReDIF in new window

1. Deneckere, R., 1989. "Capacity-Constrained Price Competition When Unit Costs Differ," Purdue University Economics Working Papers 958, Purdue University, Department of Economics.
2. Julio J. Rotemberg & Garth Saloner, 1986. "Quotas and the Stability of Implicit Collusion," NBER Working Papers 1948, National Bureau of Economic Research, Inc.
   
   • Julio Rotemberg & Garth Saloner, 1986. "Quotas and the Stability of Implicit Collusion," Working papers 419, Massachusetts Institute of Technology (MIT), Department of Economics.
3. Davidson, Carl, 1984. "Cartel stability and tariff policy," Journal of International Economics, Elsevier, vol. 17(3-4), pages 219-237, November.
4. Deneckere, R.J. & Kovenock, D. & Sohn, Y.Y., 1991. "Quotas and Tariffs with Endogenous Conduct," Purdue University Economics Working Papers 1006, Purdue University, Department of Economics.
5. Krishna, Kala, 1989. "Trade restrictions as facilitating practices," Journal of International Economics, Elsevier, vol. 26(3-4), pages 251-270, May.
   
   • Kala Krishna, 1989. "Trade Restrictions as Facilitating Practices," NBER Working Papers 1546, National Bureau of Economic Research, Inc.
6. Julio J. Rotemberg & Garth Saloner, 1989. "Tariffs vs Quotas with Implicit Collusion," Canadian Journal of Economics, Canadian Economics Association, vol. 22(2), pages 237-44, May.
7. Deneckere, Raymond J & Kovenock, Dan, 1992. "Price Leadership," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 143-62, January.
   
   • Raymond Deneckere & Dan Kovenock, 1988. "Price Leadership," Discussion Papers 773, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
8. Raymond Deneckere & Dan Kovenock, 1994. "Capacity-Constrained Price Competition when Unit Costs Differ," Industrial Organization 9411001, EconWPA, revised 15 Nov 1994.
   
   • Raymond J. Deneckere & Dan Kovenock, 1988. "Capacity-Constrained Price Competition When Unit Costs Differ," Discussion Papers 861, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
   • Deneckere, R.J. & Kovenock, D., 1994. "Capacity Constrained Price Competition when Unit Costs Differ," Purdue University Economics Working Papers 1056, Purdue University, Department of Economics.
9. Hwang, Hong & Mai, Chao-cheng, 1988. "On the equivalence of tariffs and quotas under duopoly : A conjectural variation approach," Journal of International Economics, Elsevier, vol. 24(3-4), pages 373-380, May.
10. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
11. Osborne, Martin J. & Pitchik, Carolyn, 1983. "Price Competition in a Capacity-Constrained Duopoly," Working Papers 83-08, C.V. Starr Center for Applied Economics, New York University.
    
    • Osborne, Martin J. & Pitchik, Carolyn, 1986. "Price competition in a capacity-constrained duopoly," Journal of Economic Theory, Elsevier, vol. 38(2), pages 238-260, April.
12. Simon, Leo K, 1987. "Games with Discontinuous Payoffs," Review of Economic Studies, Wiley Blackwell, vol. 54(4), pages 569-97, October.
13. Dasgupta, Partha & Maskin, Eric, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Wiley Blackwell, vol. 53(1), pages 1-26, January.
14. Kala Krishna, 1989. "What Do Voluntary Export Restraints Do?," NBER Working Papers 2612, National Bureau of Economic Research, Inc.
15. Richard E. Levitan & Martin Shubik, 1970. "Price Duopoly and Capacity Constraints," Cowles Foundation Discussion Papers 287, Cowles Foundation for Research in Economics, Yale University.
    
    • Levitan, Richard & Shubik, Martin, 1972. "Price Duopoly and Capacity Constraints," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(1), pages 111-22, February.
16. Allen, Beth & Hellwig, Martin, 1986. "Bertrand-Edgeworth Oligopoly in Large Markets," Review of Economic Studies, Wiley Blackwell, vol. 53(2), pages 175-204, April.

Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

as HTML HTML with abstract plain text plain text with abstract BibTeX RIS (EndNote, RefMan, ProCite) ReDIF in new window

Cited by:

1. Deneckere, Raymond J & Kovenock, Dan, 1992. "Price Leadership," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 143-62, January.
   
   • Raymond Deneckere & Dan Kovenock, 1988. "Price Leadership," Discussion Papers 773, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
2. Patrick Cayseele & Dave Furth, 2001. "Two is not too many for monopoly," Journal of Economics, Springer, vol. 74(3), pages 231-258, October.
3. Raymond J. Deneckere & Dan Kovenock, 1988. "Capacity-Constrained Price Competition When Unit Costs Differ," Discussion Papers 861, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
   
   • Raymond Deneckere & Dan Kovenock, 1994. "Capacity-Constrained Price Competition when Unit Costs Differ," Industrial Organization 9411001, EconWPA, revised 15 Nov 1994.
   • Deneckere, R.J. & Kovenock, D., 1994. "Capacity Constrained Price Competition when Unit Costs Differ," Purdue University Economics Working Papers 1056, Purdue University, Department of Economics.
4. Beth Allen & Raymond Deneckere & Tom Faith & Dan Kovenock, 1995. "Capacity precommitment as a barrier to entry: a Bertrand-Edgeworth approach," Staff Report 187, Federal Reserve Bank of Minneapolis.
   
   • Dan Kovenock & Raymond Deneckere & Tom Faith & Beth Allen, 2000. "Capacity precommitment as a barrier to entry: A Bertrand-Edgeworth approach," Economic Theory, Springer, vol. 15(3), pages 501-530.
   • Allen, B. & Deneckere, R. & Faith, T. & Kovenock, D., 1994. "Capacity Precommitment as a Barrier to Entry: A Bertrand-Edgeworth Approach," Purdue University Economics Working Papers 1062, Purdue University, Department of Economics.
   • Beth Allen & Raymond Deneckere & Tom Faith & Dan Kovenock, 1994. "Capacity Precommitment as a Barrier to Entry:A Bertrand-Edgeworth Approach," Industrial Organization 9411002, EconWPA, revised 14 Nov 1994.
   • Allen, B. & Deneckere, R. & Faith, T. & Kovenock, D., 1994. "Capacity Precommitment as a Barrier to Entry: A Bertrand- Engeworth Approach," Papers 9483, Tilburg - Center for Economic Research.
5. Jeanine Miklós-Thal, 2011. "Optimal collusion under cost asymmetry," Economic Theory, Springer, vol. 46(1), pages 99-125, January.
   
   • Miklos-Thal, Jeanine, 2008. "Optimal Collusion under Cost Asymmetry," MPRA Paper 11044, University Library of Munich, Germany.
   • Jeanine Thal, 2005. "Optimal Collusion under Cost Asymmetry," Working Papers 2005-36, Centre de Recherche en Economie et Statistique.
6. Robinson, W.T. & Min, S., 1998. "Is the First to Market the First to fail?: Empirical Evidence for Manufacturing Business," Purdue University Economics Working Papers 1115, Purdue University, Department of Economics.
7. Bergman, Mats A., 1998. "Endogenous Timing of Investments Yields Modified Stackelberg Outcomes," Working Paper Series in Economics and Finance 272, Stockholm School of Economics.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpio:9411001

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

---

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.

Privacy Legal