Long-Run Competition in Capacity, Short-Run Competition in Price, and the Cournot Model

Davidson, Carl; Deneckere, Raymond

doi:10.2307/2555720

Cited by 306 publications

(184 citation statements)

References 7 publications

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“…They show that quantity competition outcomes appear under efficient rationing. Other papers in this branch explore the equilibrium outcome under both efficient and random rationing (e.g., Davidson and Deneckere 1986, Maskin 1986, and Allen and Hellwig 1993. Sherman and Visscher (1982) add consideration of low-to-high rationing to the literature (see also Dana 1998Dana , 1999.…”

Section: Literature Reviewmentioning

confidence: 99%

Feasting on Leftovers: Strategic Use of Shortages in Price Competition Among Differentiated Products

Porteus

Shin

Tunca

2010

M&SOM

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T wo single-product firms with different quality levels and fixed limited capacities engage in sequential price competition in an essentially deterministic model where customers have heterogeneous valuations for both products. We develop conditions under which the leader (she) can take strategic advantage of her limited capacity by pricing relatively low, purposefully creating shortages and leaving some leftovers for the follower (him) to feast on, avoiding direct competition. The extent to which the leader benefits in this Leftovers Equilibrium depends on operational variables such as the capacity levels of the two firms and the sequence in which customers arrive at the market. We spell out the details for three different known arrival sequences within a specific subset of plausible fixed-capacity levels. The follower's strategic shadow price can be positive even when not all his capacity is used, and the leader's can be negative when all her capacity is used. We illustrate that Leftovers Equilibria can arise when some of our assumptions are relaxed.

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Section: Literature Reviewmentioning

confidence: 99%

Feasting on Leftovers: Strategic Use of Shortages in Price Competition Among Differentiated Products

Porteus

Shin

Tunca

2010

M&SOM

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“…More recently, a twostage Stackelberg-type game (similar to the oligopoly markets employed in this paper) with one exogenously given leader allowed to enter in the first period and other followers allowed to enter in the second period has been considered by Etro (2008). 5 For each firm, entry involves paying fixed entry costs and determining the magnitude of its decision variable. 6 Since Etro assumes identical firms, his model does not yield Forchheimer's model of dominant firm price leadership.…”

Section: The Frameworkmentioning

confidence: 99%

Quantity-setting games with a dominant firm

Tasnádi

2010

J. Econ.

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may Abstract:We consider a possible game-theoretic foundation of Forchheimer's model of dominant-firm price leadership based on quantity-setting games with one large firm and many small firms. If the large firm is the exogenously given first mover, we obtain Forchheimer's model. We also investigate whether the large firm can emerge as a first mover of a timing game.

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“…The way how the low-price firm serves the consumers combines the two different methods, how on the market with identical consumers the efficient and the random rationing rule can be achieved (see Davidson and Deneckere, 1986). However, on the same market a combined rationing rule can also be implemented, if each consumer can purchase…”

Section: Rationing Rulesmentioning

confidence: 99%

“…Now we modify the payoff functions by assuming that the firms have preferences above the space of expected profits and profit variances, which can be determined by the chosen rationing rule and probability distributions. Davidson and Deneckere (1986) found that random rationing is the equilibrium action of the appropriate stage in the case when both firms preferences depend only on their expected profits. This means that the firms are risk neutral.…”

Section: The Rationing Gamementioning

confidence: 99%

“…We will refer to this game as the rationing game. Davidson and Deneckere (1986) already formulated a three-stage extension of the Bertrand-Edgeworth game in that each duopolist can select the way it will serve the consumers, if it becomes the low-price firm. In their model the firms compared to our rationing game additionally can select their capacity levels.…”

Section: Introductionmentioning

confidence: 99%

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