Sequential Capacity and Price Choices in a Duopoly Model with Demand Uncertainty
This paper analyzes the effect of demand uncertainty in a two-stage duopoly model where firms first choose capacity then price, and shows that the equilibrium is sensitive to the decision structure of the model. If both the capacity choice and the price choice are made simultaneously, no pure strategy equilibrium exists. If prices are chosen sequentially, the pricing stage has two pure strategy equilibria, but only for one of these does a pure strategy equilibrium of the full game exist. Finally, if both capacities and prices are chosen sequentially, a pure strategy equilibrium with strong first mover advantages exists.
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|Date of creation:||Mar 1989|
|Publication status:||Published in: Journal of Economics/Zeitschrift für Nationalokonomie, 1990, 51(2) pp 121-144|
|Contact details of provider:|| Postal: Øster Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark|
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Web page: http://www.econ.ku.dk
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- Morten Hviid, 1989. "A Two Stage Duopoly Model with Demand Uncertainty," Discussion Papers 89-08, University of Copenhagen. Department of Economics.
- Partha Dasgupta & Eric Maskin, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Oxford University Press, vol. 53(1), pages 1-26.
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