IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper

Endogenous Timing of Investments Yields Modified Stackelberg Outcomes

  • Bergman, Mats A.

    ()

    (Dept. of Economics, Stockholm School of Economics)

Registered author(s):

    This paper deals with capacity constrained price competition in a duopoly model. The model resembles that in Kreps and Scheinkman (1983), but the timing of the investment/capacity choice is endogenous. In equilibrium, one of the firms will invest to become the Stackelberg leader, although the ratio between the leader's and the follower's capacities is smaller than in the standard Stackelberg outcome. Capacity is built too early, resulting in welfare losses. The leader and the follower will earn equal profits, except when capacity costs are small.

    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://swopec.hhs.se/hastef/papers/hastef0272.pdf.zip
    Download Restriction: no

    File URL: http://swopec.hhs.se/hastef/papers/hastef0272.pdf
    Download Restriction: no

    File URL: http://swopec.hhs.se/hastef/papers/hastef0272.ps.zip
    Download Restriction: no

    File URL: http://swopec.hhs.se/hastef/papers/hastef0272.ps
    Download Restriction: no

    Paper provided by Stockholm School of Economics in its series SSE/EFI Working Paper Series in Economics and Finance with number 272.

    as
    in new window

    Length: 27 pages
    Date of creation: 22 Oct 1998
    Date of revision:
    Handle: RePEc:hhs:hastef:0272
    Contact details of provider: Postal:
    The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden

    Phone: +46-(0)8-736 90 00
    Fax: +46-(0)8-31 01 57
    Web page: http://www.hhs.se/
    Email:


    More information through EDIRC

    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. Raymond J. Deneckere & Dan Kovenock, 1992. "Price Leadership," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 143-162.
      • Raymond Deneckere & Dan Kovenock, 1988. "Price Leadership," Discussion Papers 773, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    2. Davidson, Carl & Deneckere, Raymond J, 1990. "Excess Capacity and Collusion," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(3), pages 521-41, August.
    3. Raymond J. Deneckere & Dan Kovenock, 1988. "Capacity-Constrained Price Competition When Unit Costs Differ," Discussion Papers 861, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    4. Morten Hviid, 1989. "Sequential Capacity and Price Choices in a Duopoly Model with Demand Uncertainty," Discussion Papers 89-09, University of Copenhagen. Department of Economics.
    5. Leonard F. Herk, 1993. "Consumer Choice and Cournot Behavior in Capacity-Constrained Duopoly Competition," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 399-417, Autumn.
    6. Gilbert, Richard & Harris, Richard G., 1984. "Competition with Lumpy Investment," Department of Economics, Working Paper Series qt11v5q20z, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    7. Gilbert, Richard J., 1989. "Mobility barriers and the value of incumbency," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 8, pages 475-535 Elsevier.
    8. Robert W. Staiger & Frank A. Wolak, 1992. "Collusive Pricing with Capacity Constraints in the Presence of Demand Uncertainty," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 203-220, Summer.
    9. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    10. Holden, Steinar & Riis, Christian, 1994. "Entry into a new market a game of timing," International Journal of Industrial Organization, Elsevier, vol. 12(4), pages 549-568, December.
    11. Spulber, Daniel F, 1981. "Capacity, Output, and Sequential Entry," American Economic Review, American Economic Association, vol. 71(3), pages 503-14, June.
    12. Jean-Pierre Benoit & Vijay Krishna, 1987. "Dynamic Duopoly: Prices and Quantities," Review of Economic Studies, Oxford University Press, vol. 54(1), pages 23-35.
    13. Beth Allen & Raymond Deneckere & Tom Faith & Dan Kovenock, 1994. "Capacity Precommitment as a Barrier to Entry:A Bertrand-Edgeworth Approach," Industrial Organization 9411002, EconWPA, revised 14 Nov 1994.
    14. J. Tirole & E. Maskin, 1982. "A Theory of Dynamic Oligopoly, I: Overview and Quantity Competition with Large-Fixed Costs," Working papers 320, Massachusetts Institute of Technology (MIT), Department of Economics.
    15. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
    16. B. Curtis Eaton & Richard G. Lipsey, 1980. "Exit Barriers are Entry Barriers: The Durability of Capital as a Barrier to Entry," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 721-729, Autumn.
    17. Carl Davidson & Raymond Deneckere, 1986. "Long-Run Competition in Capacity, Short-Run Competition in Price, and the Cournot Model," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 404-415, Autumn.
    18. Dixit, Avinash, 1979. "The Role of Investment in Entry-Deterrence," The Warwick Economics Research Paper Series (TWERPS) 140, University of Warwick, Department of Economics.
    19. 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.
    20. Michael Riordan & David Salant, 1992. "Preemptive Adoptions of an Emerging Technology," Papers 0030, Boston University - Industry Studies Programme.
    21. Ram C. Rao & David P. Rutenberg, 1979. "Preempting an Alert Rival: Strategic Timing of the First Plant by Analysis of Sophisticated Rivalry," Bell Journal of Economics, The RAND Corporation, vol. 10(2), pages 412-428, Autumn.
    22. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, June.
    23. Robson, Arthur J, 1990. "Duopoly with Endogenous Strategic Timing: Stackelberg Regained," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 263-74, May.
    24. Allen, Beth, 1993. "Capacity precommitment as an entry barrier for price-setting firms," International Journal of Industrial Organization, Elsevier, vol. 11(1), pages 63-72, March.
    25. Allen, B., 1994. "Capacity Precommitment as a Barrier to Entry : A Bertrand-Edgeworth Approach," Discussion Paper 1994-83, Tilburg University, Center for Economic Research.
    26. Anderson, Simon P & Engers, Maxim, 1994. "Strategic Investment and Timing of Entry," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(4), pages 833-53, November.
    27. Pal, Debashis, 1996. "Endogenous Stackelberg Equilibria with Identical Firms," Games and Economic Behavior, Elsevier, vol. 12(1), pages 81-94, January.
    28. Drew Fudenberg & Jean Tirole, 1985. "Preemption and Rent Equalization in the Adoption of New Technology," Review of Economic Studies, Oxford University Press, vol. 52(3), pages 383-401.
    29. William A. Brock & José A. Scheinkman, 1985. "Price Setting Supergames with Capacity Constraints," Review of Economic Studies, Oxford University Press, vol. 52(3), pages 371-382.
    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:hhs:hastef:0272. 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: (Helena Lundin)

    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.