Bertrand-Edgeworth competition with substantial product differentiation
Since Kreps and Scheinkman's seminal article (1983) a large number of papers have analyzed capacity constraints' potential to relax price competition. However, the ensuing literature has assumed that products are either perfect or very close substitutes. Therefore none of the papers has investigated the interaction between capacity constraints and substantial local monopoly power. The aim of the present paper is to shed light on this question using a standard Hotelling setup. The high level of product dfferentiation results in a variety of equilibrium firm behavior and it generates at least one pure strategy equilibrium for any capacity level. Thus the presence of local monopoly power challenges one of the most general findings about Bertrand-Edgeworth competition: the non-existence of pure strategy equilibria for some capacity levels.
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- Canoy, Marcel, 1996. "Product Differentiation in a Bertrand-Edgeworth Duopoly," Journal of Economic Theory, Elsevier, vol. 70(1), pages 158-179, July.
- Xiangkang Yin, 2000.
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2000.11, School of Economics, La Trobe University.
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"Quality and location choices under price regulation
[Qualitäts- und Standortwahl bei Preisregulierung]," Discussion Papers, Research Unit: Market Processes and Governance FS IV 02-28, Social Science Research Center Berlin (WZB).
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CEPR Discussion Papers
6096, C.E.P.R. Discussion Papers.
- de Frutos, María-Ángeles & Fabra, Natalia, 2011. "Endogenous capacities and price competition: The role of demand uncertainty," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 399-411, July.
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"Price and capacity competition,"
Games and Economic Behavior,
Elsevier, vol. 66(1), pages 1-26, May.
- Koji Ishibashi & Toyokazu Kaneko, 2008. "Partial privatization in mixed duopoly with price and quality competition," Journal of Economics, Springer, vol. 95(3), pages 213-231, December.
- Xavier Wauthy, 1996. "Capacity constraints may restore the existence of an equilibrium in the Hotelling model," Journal of Economics, Springer, vol. 64(3), pages 315-324, October.
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