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Capacity precommitment and price competition yield the Cournot outcome

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  • Moreno, Diego
  • Ubeda, Luis

Abstract

We study an industry of a homogeneous good where n firms with identical technology compete by first building capacity, and then, after observing the capacity decisions, choosing a "reservation price" at which they are willing to sell their entire capacities. We show that every pure strategy equilibrium yields the Cournot outcome, and that the Cournot outcome can be sustained by a pure strategy subgame perfect equilibrium.
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  • Moreno, Diego & Ubeda, Luis, 2006. "Capacity precommitment and price competition yield the Cournot outcome," Games and Economic Behavior, Elsevier, vol. 56(2), pages 323-332, August.
    • Handle: RePEc:eee:gamebe:v:56:y:2006:i:2:p:323-332
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    8. Lemus, Ana B. & Moreno, Diego, 2020. "Strategic incentives for keeping one set of books under the Arm’s Length Principle," Mathematical Social Sciences, Elsevier, vol. 106(C), pages 78-90.
    9. de Frutos, María-Ángeles & Fabra, Natalia, 2011. "Endogenous capacities and price competition: The role of demand uncertainty," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 399-411, July.
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    11. Michal Król, 2012. "‘Everything must go!’- Cournot as a Stable Convention within Strategic Supply Function Competition," Economics Discussion Paper Series 1217, Economics, The University of Manchester.
    12. Lemus Torres, Ana Belén, 2011. "Strategic incentives for kepping one set of books under the Arm's Length Principle," UC3M Working papers. Economics we1135, Universidad Carlos III de Madrid. Departamento de Economía.
    13. Amr Farahat & Woonghee Tim Huh & Hongmin Li, 2019. "On the Relationship Between Quantity Precommitment and Cournot Games," Operations Research, INFORMS, vol. 67(1), pages 109-122, January.
    14. F. Delbono & L. Lambertini, 2015. "Cournot Retrouv under Price or Supply Function Competition," Working Papers wp1003, Dipartimento Scienze Economiche, Universita' di Bologna.
    15. Breitmoser, Yves, 2012. "On the endogeneity of Cournot, Bertrand, and Stackelberg competition in oligopolies," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 16-29.
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