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Dynamic duopoly with congestion effects

  • Laussel, Didier
  • de Montmarin, Maxime
  • Van Long, Ngo

We analyze duopolistic competition between horizontally differentiated firms selling durable goods or services subject to congestion. At each point of time, new customers buy one unit of the commodity from one of the firms, by comparing present prices and future congestion rates. We study the linear Markov equilibrium of this game which exists and is unique when firms are not too different. The existence of negative consumption externalities is shown to soften the price competition. Moreover, we show that the firm with the larger capacity has, at the steady state, a larger market share, a higher price, and a lower congestion rate. The price of an entrant decreases gradually after entry, while the price of the incumbent rises. The speed of convergence to the steady state is faster, the stronger is the congestion effect. On étudie la concurrence entre deux firmes qui vendent des biens ou des services durables sous la condition d'encombrement. À chaque instant, des clients nouveaux achètent une unité du bien, en comparant les prix et les taux d'encombrement futur. On caractérise l'équilibre markovien de ce jeu. L'existence des externalités négatives rend la concurrence moins féroce. On montre que la firme qui a la plus grande capacité a, dans l'état stationnaire, une plus grande part de marché, un prix plus élevé, et un taux d'encombrement plus faible. Le prix du bien d'une nouvelle firme diminue continuellement, tandis que celui de son rival en exercise monte. La vitesse de convergence est une fonction croissante de l'effet d'encombrement.

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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 22 (2004)
Issue (Month): 5 (May)
Pages: 655-677

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Handle: RePEc:eee:indorg:v:22:y:2004:i:5:p:655-677
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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  1. Toker Doganoglu, 2000. "Dynamic Price Competition with Persistent Consumer Tastes," Econometric Society World Congress 2000 Contributed Papers 1442, Econometric Society.
  2. GRILO, Isabel & SHY, Oz & THISSE, Jacques-François, . "Price competition when consumer behavior is characterized by conformity or vanity," CORE Discussion Papers RP -1518, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  4. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, June.
  5. Scotchmer, Suzanne, 1985. "Profit-maximizing clubs," Journal of Public Economics, Elsevier, vol. 27(1), pages 25-45, June.
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  7. Karp, Larry, 1995. "Depreciation Erodes the Coase Conjecture," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt1fs6j5nn, Department of Agricultural & Resource Economics, UC Berkeley.
  8. d'ASPREMONT, Claude & GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "On Hotelling's "Stability in competition"," CORE Discussion Papers RP -385, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  10. Driskill, Robert, 2001. "Durable goods oligopoly," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 391-413, March.
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