IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Dynamic Cournot duopoly with intertemporal capacity constraints

  • van den Berg, Anita
  • Bos, Iwan
  • Herings, P. Jean-Jacques
  • Peters, Hans

This paper studies a dynamic Cournot duopoly in which suppliers have a limited amount of products available for two consecutive periods. We derive optimal sales strategies and analyze welfare effects with and without commitment. Under commitment, strategies do not depend on the rival's realized sales. In this case, there is a unique Nash equilibrium for any allocation of initial supplies and prices increase over time. Absent commitment, sellers can adjust their supply decision after the first period. In this case, a subgame perfect Nash equilibrium does not always exist and prices may decline over time. A more asymmetric allocation of stocks generally leads to higher first-period prices, whereas the impact on second-period prices is ambiguous. The larger firm typically prefers not to commit, whereas the smaller firm is better off under commitment. Commitment generates a higher total surplus and (almost always) a higher consumer surplus. Our findings thus suggest that market transparency or flexible supply contracts can adversely affect welfare in situations where production precedes sales and firms face an intertemporal capacity constraint.

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://www.sciencedirect.com/science/article/pii/S0167718711000798
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

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

Volume (Year): 30 (2012)
Issue (Month): 2 ()
Pages: 174-192

as
in new window

Handle: RePEc:eee:indorg:v:30:y:2012:i:2:p:174-192
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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 in new window
  1. Richard E. Levitan & Martin Shubik, 1970. "Price Duopoly and Capacity Constraints," Cowles Foundation Discussion Papers 287, Cowles Foundation for Research in Economics, Yale University.
  2. Loury, Glenn C, 1986. "A Theory of 'Oil'igopoly: Cournot Equilibrium in Exhaustible Resource Markets with Fixed Supplies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(2), pages 285-301, June.
  3. Bikhchandani, Sushil & Mamer, John W., 1993. "A duopoly model of pricing for inventory liquidation," European Journal of Operational Research, Elsevier, vol. 69(2), pages 177-186, September.
  4. Kovenock, Dan & Roy, Suddhasatwa, 1998. "Dynamic capacity choice in a Bertrand-Edgeworth frameqork," Journal of Mathematical Economics, Elsevier, vol. 29(2), pages 135-160, March.
  5. 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.
  6. David Besanko & Ulrich Doraszelski, 2004. "Capacity Dynamics and Endogenous Asymmetries in Firm Size," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 23-49, Spring.
  7. Murugappa Krishnan & Lars-Hendrick Roller, 1993. "Preemptive Investment with Resalable Capacity," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 479-502, Winter.
  8. Jean J. Gabszewicz & Sougata Poddar, 1997. "Demand fluctuations and capacity utilization under duopoly," Economic Theory, Springer, vol. 10(1), pages 131-146.
  9. Reinganum, Jennifer F & Stokey, Nancy L, 1985. "Oligopoly Extraction of a Common Property Natural Resource: The Importance of the Period of Commitment in Dynamic Games," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(1), pages 161-73, February.
  10. Pal, Debashis, 1991. "Cournot duopoly with two production periods and cost differentials," Journal of Economic Theory, Elsevier, vol. 55(2), pages 441-448, December.
  11. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
  12. Saloner, Garth, 1987. "Cournot duopoly with two production periods," Journal of Economic Theory, Elsevier, vol. 42(1), pages 183-187, June.
  13. Lewis, Tracy R & Schmalensee, Richard, 1980. "On Oligopolistic Markets for Nonrenewable Natural Resources," The Quarterly Journal of Economics, MIT Press, vol. 95(3), pages 475-91, November.
  14. Salo, Seppo & Tahvonen, Olli, 2001. "Oligopoly equilibria in nonrenewable resource markets," Journal of Economic Dynamics and Control, Elsevier, vol. 25(5), pages 671-702, May.
  15. Gérard Gaudet & Ngo Van Long, 1991. "On the Effects of the Distribution of Initial Endowments in a non Renewable Resource Duopoly," Cahiers de recherche du Département des sciences économiques, UQAM 9202, Université du Québec à Montréal, Département des sciences économiques.
  16. Pal, Debashis, 1996. "Endogenous Stackelberg Equilibria with Identical Firms," Games and Economic Behavior, Elsevier, vol. 12(1), pages 81-94, January.
  17. Biglaiser, Gary & Vettas, Nikolaos, 2004. "Dynamic Price Competition with Capacity Constraints and Strategic Buyers," CEPR Discussion Papers 4315, C.E.P.R. Discussion Papers.
Full references (including those not matched with items on IDEAS)

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

When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:30:y:2012:i:2:p:174-192. See general information about how to correct material in RePEc.

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

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.