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Multiregional Oligopoly with Capacity Constraints

Author

Listed:
  • Humoud Alsabah

    (Department of Industrial Engineering and Operations Research, Columbia University, New York, New York 10027)

  • Benjamin Bernard

    (Department of Economics, National Taiwan University, Taipei City, 10617 Taiwan)

  • Agostino Capponi

    (Department of Industrial Engineering and Operations Research, Columbia University, New York, New York 10027)

  • Garud Iyengar

    (Department of Industrial Engineering and Operations Research, Columbia University, New York, New York 10027)

  • Jay Sethuraman

    (Department of Industrial Engineering and Operations Research, Columbia University, New York, New York 10027)

Abstract

We develop a model of Cournot competition between capacity-constrained firms that sell a single good to multiple regions. We provide a novel characterization for the unique equilibrium allocation of the good across regions and design an algorithm to compute it. We show that a reduction in transportation costs by a firm may negatively impact the profit of all firms and reduce aggregate consumer surplus if such a firm is capacity constrained. Our results imply that policies promoting free trade may have unintended consequences and reduce aggregate welfare in capacity-constrained industries.

Suggested Citation

  • Humoud Alsabah & Benjamin Bernard & Agostino Capponi & Garud Iyengar & Jay Sethuraman, 2021. "Multiregional Oligopoly with Capacity Constraints," Management Science, INFORMS, vol. 67(8), pages 4789-4808, August.
    • Handle: RePEc:inm:ormnsc:v:67:y:2021:i:8:p:4789-4808
    DOI: 10.1287/mnsc.2020.3728
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    References listed on IDEAS

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    Cited by:

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    2. Reinhard Ellwanger & Hinnerk Gnutzmann & Piotr Śpiewanowski, 2023. "Cost Pass-Through with Capacity Constraints and International Linkages," Staff Working Papers 23-16, Bank of Canada.

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