Endogenous capacities and price competition: the role of demand uncertainty
| Autor: | Maria-Angeles de Frutos, Natalia Fabra |
|---|---|
| Rok vydání: | 2011 |
| Předmět: |
jel:D80
TheoryofComputation_MISCELLANEOUS Economics and Econometrics Computer Science::Computer Science and Game Theory Marginal revenue Strategy and Management Economics Econometrics and Finance (miscellaneous) Price competition Cournot competition jel:D43 Submodular set function Subgame perfect equilibrium Economía Competition (economics) symbols.namesake Demand uncertainty Order (exchange) Economics Submodular games L11 TheoryofComputation_GENERAL demand uncertainty investment price competition submodular game Cournot game jel:L11 Nash equilibrium Industrial relations Price dispersion symbols D80 Investment Mathematical economics D43 |
| Zdroj: | e-Archivo. Repositorio Institucional de la Universidad Carlos III de Madrid instname |
| Popis: | We analyze the role of demand uncertainty in markets of fixed size, in which firms take long-run capacity decisions prior to competing in prices. We characterize the set of subgame perfect Nash equilibria under various assumptions regarding the nature and timing of demand uncertainty. In order to prove equilibrium existence, we identify a sufficient condition for the capacity choice game to be submodular. This condition resembles the standard downward-sloping marginal revenue condition used in Cournot games. A robust conclusion of the analysis is that equilibrium capacity choices are asymmetric, even when firms are ex-ante identical. Concerning the equivalence between the capacity-price game and the Cournot game, we find that with inelastic demands, the equilibria of the former belong to the equilibrium set of the latter. However, as compared to the Cournot game, the capacity-price game leads to lower prices and generates price dispersion. Publicado |
| Databáze: | OpenAIRE |
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