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Equilibrium vertical differentiation in a Bertrand model with capacity precommitment

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  • Boccard, N.
  • Wauthy, X.Y.

Abstract

Both quality differentiation and capacity commitment have been shown to relax price competition. However, their joint influence on the outcome of price competition has not yet been assessed. In this article, we consider a three-stage game in which firms choose quality, then commit to capacity and, finally, compete in price. When the cost of quality is negligible, we show that firms do not differentiate their products in a subgame perfect equilibrium, in other words, capacity precommitment completely eliminates the incentive to differentiate by quality.

Suggested Citation

  • Boccard, N. & Wauthy, X.Y., 2010. "Equilibrium vertical differentiation in a Bertrand model with capacity precommitment," International Journal of Industrial Organization, Elsevier, vol. 28(3), pages 288-297, May.
  • Handle: RePEc:eee:indorg:v:28:y:2010:i:3:p:288-297
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    4. Boccard, Nicolas & Wauthy, Xavier, 2003. "Sales Restriction, Quality Selection and the Mode of Competition," Working Papers of the Department of Economics, University of Girona 5, Department of Economics, University of Girona.
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    11. James A. Brander & Barbara J. Spencer, 2015. "Endogenous Horizontal Product Differentiation under Bertrand and Cournot Competition: Revisiting the Bertrand Paradox," NBER Working Papers 20966, National Bureau of Economic Research, Inc.
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