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Capacity constrained price competition with transportation costs

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  • Muthers, Johannes
  • Hunold, Matthias

Abstract

We characterize mixed-strategy equilibria in case of capacity constrained price competition, transportation costs and customer-specific pricing. Equilibrium prices weakly increase in the distance between supplier and customer. Despite prices above costs and excess capacities, the firms exclusively their serve home markets. Competition yields volatile market shares and an inefficient allocation of more distant customers to suppliers. Even ex-post subcontracts may restore efficiency only partly.

Suggested Citation

  • Muthers, Johannes & Hunold, Matthias, 2017. "Capacity constrained price competition with transportation costs," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168248, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc17:168248
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    File URL: https://www.econstor.eu/bitstream/10419/168248/1/VfS-2017-pid-3422.pdf
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    References listed on IDEAS

    as
    1. Robert Somogyi, 2013. "Bertrand-Edgeworth competition with substantial product differentiation," IEHAS Discussion Papers 1332, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    2. Pio Baake & Jörg Oechssler & Christoph Schenk, 1999. "Explaining cross-supplies," Journal of Economics, Springer, vol. 70(1), pages 37-60, February.
    3. Canoy, Marcel, 1996. "Product Differentiation in a Bertrand-Edgeworth Duopoly," Journal of Economic Theory, Elsevier, vol. 70(1), pages 158-179, July.
    4. Normann, Hans-Theo & Tan, Elaine S., 2013. "Effects of different cartel policies: Evidence from the German power-cable industry," DICE Discussion Papers 108, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
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    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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