IDEAS home Printed from https://ideas.repec.org/a/wly/mgtdec/v44y2023i8p4395-4403.html
   My bibliography  Save this article

Capacity choice with upstream investment

Author

Listed:
  • Qing Hu
  • Tomomichi Mizuno

Abstract

We consider a vertically related market with an upstream firm engaging in cost‐reducing investment and n downstream firms competing on quantity. We analyze the capacity choice by downstream firms. We find that input price decreases with production capacity if many downstream firms exist or the investment is efficient. More importantly, in the previous research, it is shown that the duopolistic downstream firms always choose undercapacity in a vertical market with an upstream firm. However, we find that overcapacity occurs in equilibrium if the number of downstream firms is large or the upstream investment is efficient.

Suggested Citation

  • Qing Hu & Tomomichi Mizuno, 2023. "Capacity choice with upstream investment," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(8), pages 4395-4403, December.
    • Handle: RePEc:wly:mgtdec:v:44:y:2023:i:8:p:4395-4403
    DOI: 10.1002/mde.3956
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/mde.3956
    Download Restriction: no
    File URL: https://libkey.io/10.1002/mde.3956?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Roberto Fontana & Marco Guerzoni, 2008. "Incentives and uncertainty: an empirical analysis of the impact of demand on innovation," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 32(6), pages 927-946, November.
    2. Hikaru Ogawa & Akira Nishimori, 2004. "Do Firms Always Choose Excess Capacity?," Economics Bulletin, AccessEcon, vol. 12(2), pages 1-7.
    3. Luciano Fanti & Nicola Meccheri, 2017. "Unionization Regimes, Capacity Choice by Firms and Welfare Outcomes," Manchester School, University of Manchester, vol. 85(6), pages 661-681, December.
    4. Dixit, Avinash, 1980. "The Role of Investment in Entry-Deterrence," Economic Journal, Royal Economic Society, vol. 90(357), pages 95-106, March.
    5. DongJoon Lee & Kangsik Choi, 2016. "BERTRAND Vs. COURNOT COMPETITION WITH UPSTREAM FIRM INVESTMENT," Bulletin of Economic Research, Wiley Blackwell, vol. 68(S1), pages 56-65, December.
    6. Saloner, Garth, 1985. "Excess capacity as a policing device," Economics Letters, Elsevier, vol. 18(1), pages 83-86.
    7. Dae-Hee Yoon, 2016. "Supplier Encroachment and Investment Spillovers," Production and Operations Management, Production and Operations Management Society, vol. 25(11), pages 1839-1854, November.
    8. James A. Brander & Barbara J. Spencer, 1983. "Strategic Commitment with R&D: The Symmetric Case," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 225-235, Spring.
    9. repec:ebl:ecbull:v:12:y:2004:i:2:p:1-7 is not listed on IDEAS
    10. Lu, Yuanzhu & Poddar, Sougata, 2005. "Mixed oligopoly and the choice of capacity," Research in Economics, Elsevier, vol. 59(4), pages 365-374, December.
    11. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
    12. Kangsik Choi & DongJoon Lee, 2020. "Do firms choose overcapacity or undercapacity in a vertical structure?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(5), pages 839-847, July.
    13. Yutaka Horiba & Shunichi Tsutsui, 2000. "International Duopoly, Tariff Policy and the Superiority of Free Trade," The Japanese Economic Review, Japanese Economic Association, vol. 51(2), pages 207-220, June.
    14. Hackner, Jonas, 2000. "A Note on Price and Quantity Competition in Differentiated Oligopolies," Journal of Economic Theory, Elsevier, vol. 93(2), pages 233-239, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kangsik Choi & DongJoon Lee, 2020. "Do firms choose overcapacity or undercapacity in a vertical structure?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(5), pages 839-847, July.
    2. Yoshihiro Tomaru & Yasuhiko Nakamura & Masayuki Saito, 2009. "Capacity Choice in a Mixed Duopoly with Managerial Delegation," Economics Bulletin, AccessEcon, vol. 29(3), pages 1904-1924.
    3. Yuanzhu Lu & Sougata Poddar, 2009. "Endogenous Timing In A Mixed Duopoly And Private Duopoly –‘Capacity‐Then‐Quantity’ Game: The Linear Demand Case," Australian Economic Papers, Wiley Blackwell, vol. 48(2), pages 138-150, June.
    4. Nakamura, Yasuhiko, 2014. "Capacity choice in a duopoly with a consumer-friendly firm and an absolute profit-maximizing firm," International Review of Economics & Finance, Elsevier, vol. 34(C), pages 105-117.
    5. Jorge Fernández-Ruiz, 2019. "Capacity choice and optimal privatization in a mixed duopoly," Economics Bulletin, AccessEcon, vol. 39(4), pages 2751-2765.
    6. repec:ebl:ecbull:v:12:y:2007:i:26:p:1-7 is not listed on IDEAS
    7. Bloomfield, Matthew J., 2021. "Compensation disclosures and strategic commitment: Evidence from revenue-based pay," Journal of Financial Economics, Elsevier, vol. 141(2), pages 620-643.
    8. Luciano Fanti & Nicola Meccheri, 2014. "Capacity choice and welfare under alternative unionisation structures," Discussion Papers 2014/176, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    9. DongJoon Lee & Joonghwa Oh, 2022. "Strategic commitments of downstream investment firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 2098-2107, September.
    10. Jiaqi Chen & Sang‐Ho Lee, 2023. "Cournot–Bertrand comparisons under R&D competition: Output versus R&D subsidies," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(1), pages 77-100, March.
    11. Niu, Shuai, 2013. "The equivalence of profit-sharing licensing and per-unit royalty licensing," Economic Modelling, Elsevier, vol. 32(C), pages 10-14.
    12. Ki‐Dong Lee & Sunghee Choi & Kangsik Choi, 2020. "Bertrand versus Cournot competition in a downstream mixed oligopoly with foreign ownership," Bulletin of Economic Research, Wiley Blackwell, vol. 72(2), pages 101-120, April.
    13. Kazuhiro Ohnishi, 2022. "Lifetime Employment and Stackelberg Mixed Duopoly Games with a Foreign Labour-Managed Competitor," Arthaniti: Journal of Economic Theory and Practice, , vol. 21(1), pages 27-42, June.
    14. Chen, Jingxian & Liang, Liang & Yao, Dong-qing, 2019. "Factory encroachment and channel selection in an outsourced supply chain," International Journal of Production Economics, Elsevier, vol. 215(C), pages 73-83.
    15. Junlong Chen & Chaoqun Sun & Jiali Liu, 2022. "Corporate social responsibility, consumer sensitivity, and overcapacity," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(2), pages 544-554, March.
    16. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, July.
    17. Luciano Fanti & Nicola Meccheri, 2017. "Unionization Regimes, Capacity Choice by Firms and Welfare Outcomes," Manchester School, University of Manchester, vol. 85(6), pages 661-681, December.
    18. Ki‐Dong Lee & Kangsik Choi, 2024. "Uniform versus discriminatory tariffs when competition mode is endogenous," Bulletin of Economic Research, Wiley Blackwell, vol. 76(1), pages 95-120, January.
    19. Juan Carlos Bárcena‐Ruiz & Maria Begoña Garzón, 2010. "Endogenous Timing In A Mixed Duopoly With Capacity Choice," Manchester School, University of Manchester, vol. 78(2), pages 93-109, March.
    20. Krishnendu Ghosh Dastidar & Makoto Yano, 2021. "Corruption, market quality, and entry deterrence in emerging economies," International Journal of Economic Theory, The International Society for Economic Theory, vol. 17(1), pages 101-117, March.
    21. Yunus Emre Gürler & Sinan Ertemel & Matthias Finger & Muzaffer Eroğlu, 2024. "Legal and ownership unbundling in the Turkish natural gas market: A comparative analysis," Competition and Regulation in Network Industries, , vol. 25(1), pages 19-42, March.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:mgtdec:v:44:y:2023:i:8:p:4395-4403. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www3.interscience.wiley.com/cgi-bin/jhome/7976 .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.