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Bertrand Competition with Non-rigid Capacity Constraints

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  • Prabal, Roy Chowdhury

Abstract

We examine a model of Bertrand competition with non-rigid capacity constraints, so that by incurring an additional cost, firms can produce beyond capacity. We find that there is an interval of prices such that a price can be sustained as a pure strategy Nash equilibrium if and only if it lies in this interval. We then examine the properties of this set as (a) the number of firms becomes large and (b) the capacity cost increases.

Suggested Citation

  • Prabal, Roy Chowdhury, 2008. "Bertrand Competition with Non-rigid Capacity Constraints," MPRA Paper 9172, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:9172
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    References listed on IDEAS

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    1. Dastidar, Krishnendu Ghosh, 1995. "On the Existence of Pure Strategy Bertrand Equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 5(1), pages 19-32, January.
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    7. Novshek, William & Chowdhury, Prabal Roy, 2003. "Bertrand equilibria with entry: limit results," International Journal of Industrial Organization, Elsevier, vol. 21(6), pages 795-808, June.
    8. Prabal Chowdhury & Kunal Sengupta, 2004. "Coalition-proof Bertrand equilibria," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(2), pages 307-324, August.
    9. Beth Allen & Martin Hellwig, 1986. "Bertrand-Edgeworth Oligopoly in Large Markets," Review of Economic Studies, Oxford University Press, vol. 53(2), pages 175-204.
    10. Chaudhuri, Prabal Ray, 1996. "The contestable outcome as a Bertrand equilibrium," Economics Letters, Elsevier, vol. 50(2), pages 237-242, February.
    11. Maggi, Giovanni, 1996. "Strategic Trade Policies with Endogenous Mode of Competition," American Economic Review, American Economic Association, vol. 86(1), pages 237-258, March.
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    Cited by:

    1. Subhayu Bandyopadhyay & Sugata Marjit & Lei Yang, 2010. "An evaluation of the employment effects of barriers to outsourcing," Working Papers 2010-030, Federal Reserve Bank of St. Louis.
    2. Marie‐Laure Cabon‐Dhersin & Nicolas Drouhin, 2014. "Tacit Collusion in a One‐Shot Game of Price Competition with Soft Capacity Constraints," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(2), pages 427-442, June.
    3. Antoniou, Fabio & Fiocco, Raffaele & Guo, Dongyu, 2017. "Asymmetric price adjustments: A supply side approach," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 335-360.
    4. Makoto Yano & Takashi Komatsubara, 2018. "Price competition or price leadership," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 66(4), pages 1023-1057, December.
    5. Makoto Yano & Takashi Komatsubara, 2012. "Price Competition or Tacit Collusion," KIER Working Papers 807, Kyoto University, Institute of Economic Research.
    6. Marie-Laure Cabon-Dhersin & Jonas Didisse, 2017. "Inter-university competition and high tuition fees," Working Papers halshs-01174291, HAL.

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    JEL classification:

    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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