Dynamic Cournot duopoly with intertemporal capacity constraints
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.
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.
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.:
- Jean J. Gabszewicz & Sougata Poddar, 1997.
"Demand fluctuations and capacity utilization under duopoly,"
Springer, vol. 10(1), pages 131-146.
- Gabszewicz, J.J. & Poddar, S., . "Demand fluctuations and capacity utilization under duopoly," CORE Discussion Papers RP 1269, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- GABSZEWICZ, Jean J. & PODDAR , Sougata, 1995. "Demand Fluctuations and Capacity Utilization under Duopoly," CORE Discussion Papers 1995051, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Pal, Debashis, 1991. "Cournot duopoly with two production periods and cost differentials," Journal of Economic Theory, Elsevier, vol. 55(2), pages 441-448, December.
- Kovenock, D. & Roy, S., 1995.
"Dynamic Capacity Choice in a Bertrand-Edgeworth Framework,"
Purdue University Economics Working Papers
1080, Purdue University, Department of Economics.
- 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.
- Lewis, Tracy R. & Schmalensee, Richard., 1979.
"On oligopolistic markets for nonrenewable natural resources,"
1052-79., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Tracy R. Lewis & Richard Schmalensee, 1980. "On Oligopolistic Markets for Nonrenewable Natural Resources," The Quarterly Journal of Economics, Oxford University Press, vol. 95(3), pages 475-491.
- 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.
- Biglaiser, Gary & Vettas, Nikolaos, 2004.
"Dynamic Price Competition with Capacity Constraints and Strategic Buyers,"
CEPR Discussion Papers
4315, C.E.P.R. Discussion Papers.
- Gary Biglaiser & Nikolaos Vettas, 2007. "Dynamic price competition with capacity constraints and strategic buyers," Working Papers 24, Portuguese Competition Authority.
- 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.
- Gaudet, Gerard & Long, Ngo Van, 1994.
"On the effects of the distribution of initial endowments in a nonrenewable resource duopoly,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 18(6), pages 1189-1198, November.
- 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.
- Osborne, Martin J. & Pitchik, Carolyn, 1983.
"Price Competition in a Capacity-Constrained Duopoly,"
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.
- 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.
- David Besanko & Ulrich Doraszelski, 2002. "Capacity Dynamics and Endogenous Asymmetries in Firm Size," Computing in Economics and Finance 2002 196, Society for Computational Economics.
- 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.
- 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.
- 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.
- 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.
- Saloner, Garth, 1987. "Cournot duopoly with two production periods," Journal of Economic Theory, Elsevier, vol. 42(1), pages 183-187, June.
- Richard E. Levitan & Martin Shubik, 1970.
"Price Duopoly and Capacity Constraints,"
Cowles Foundation Discussion Papers
287, Cowles Foundation for Research in Economics, Yale University.
- Pal, Debashis, 1996. "Endogenous Stackelberg Equilibria with Identical Firms," Games and Economic Behavior, Elsevier, vol. 12(1), pages 81-94, January.
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.