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Relaxing Bertrand competition : capacity commitment beats quality differentiation

Author

Listed:
  • BOCCARD, Nicolas

    (Université de Liège, Liège and Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

  • WAUTHY, Xavier

    (CEREC, Facultés universitaires Saint-Louis, Bruxelles and Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

Abstract

Both product differentiation through quality and capacity commitment have been shown to relax price competition. However, they have not been considered simultaneously. To this end we consider a three stage game where firms choose quality then commit to capacity and finally compete in price. We show that in equilibrium, firms differentiate their products less than if they were not able to commit to limited capacities. This is because they are able to enjoy Cournot profits at the stage where capacity are chosen. Furthermore if the cost of quality is low, capacity pre-commitment completely eliminates the incentives to differentiate

Suggested Citation

  • BOCCARD, Nicolas & WAUTHY, Xavier, 1999. "Relaxing Bertrand competition : capacity commitment beats quality differentiation," LIDAM Discussion Papers CORE 1999056, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:1999056
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    References listed on IDEAS

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    Cited by:

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    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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