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Dynamic Price Competition with Capacity Constraints and a Strategic Buyer

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  • James J. Anton
  • Gary Biglaiser
  • Nikolaos Vettas

Abstract

We analyze a simple dynamic durable good oligopoly model where sellers are capacity constrained. Two incumbent sellers and potential entrants choose their capacities at the start of the game. We solve for equilibrium capacity choices and the (necessarily mixed) pricing strategies. In equilibrium, the buyer splits the order with positive probability to preserve competition; thus it is possible that a high and low price seller both have sales. Sellers command a rent above the value of unmet demand by the other seller. A buyer would benet from either a commitment not to buy in the future or by hiring an agent with instructions to buy always from the lowest priced seller.
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  • James J. Anton & Gary Biglaiser & Nikolaos Vettas, 2012. "Dynamic Price Competition with Capacity Constraints and a Strategic Buyer," Levine's Working Paper Archive 786969000000000614, David K. Levine.
    • Handle: RePEc:cla:levarc:786969000000000614
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    Cited by:

    1. Vettas, Nikolaos & Kotseva, Rossitsa & Christou, Charalambos, 2007. "Pricing, Investments and Mergers with Intertemporal Capacity Constraints," CEPR Discussion Papers 6433, C.E.P.R. Discussion Papers.
    2. Fabian Bergès & Claire Chambolle, 2009. "Threat of Exit as a Source of Bargaining Power," Recherches économiques de Louvain, De Boeck Université, vol. 75(3), pages 353-368.
    3. Berk, Istemi, 2015. "Two-Period Resource Duopoly with Endogenous Intertemporal Capacity Constraints," EWI Working Papers 2014-13, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    4. Liski, Matti & Montero, Juan-Pablo, 2014. "Forward trading in exhaustible-resource oligopoly," Resource and Energy Economics, Elsevier, vol. 37(C), pages 122-146.
    5. van den Berg, A.H.J. & Herings, P.J.J. & Peters, H.J.M., 2009. "Dynamic duopoly with intertemporal capacity constraints," Research Memorandum 018, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    6. Vettas, Nikolaos & Biglaiser, Gary, 2004. "Dynamic Price Competition with Capacity Constraints and Strategic Buyers," CEPR Discussion Papers 4315, C.E.P.R. Discussion Papers.
    7. E. Bacchiega & O. Bonroy, 2012. "Vertical relations and number of channels in quality-differentiated markets," Working Papers wp823, Dipartimento Scienze Economiche, Universita' di Bologna.
    8. Sakellaris, Kostis, 2010. "Modeling Electricity Markets as Two-Stage Capacity Constrained Price Competition Games under Uncertainty," MPRA Paper 23317, University Library of Munich, Germany.
    9. Kalyan Talluri & Victor Martínez-de-Albéniz, 2010. "Dynamic Price Competition with Fixed Capacities," Working Papers 425, Barcelona School of Economics.
    10. van den Berg, Anita & Bos, Iwan & Herings, P. Jean-Jacques & Peters, Hans, 2012. "Dynamic Cournot duopoly with intertemporal capacity constraints," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 174-192.
    11. Victor Martínez-de-Albéniz & Kalyan Talluri, 2011. "Dynamic Price Competition with Fixed Capacities," Management Science, INFORMS, vol. 57(6), pages 1078-1093, June.
    12. Kalyan Talluri & Víctor Martínez de Albéniz, 2010. "Dynamic price competition with fixed capacities," Economics Working Papers 1205, Department of Economics and Business, Universitat Pompeu Fabra.
    13. Niloofar Fadavi, 2022. "Subgame perfect Nash equilibrium for dynamic pricing competition with finite planning horizon," Papers 2208.02842, arXiv.org.
    14. James J. Anton & Gary Biglaiser & Nikolaos Vettas, 2014. "Dynamic Price Competition With Capacity Constraints And A Strategic Buyer," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(3), pages 943-958, August.
    15. Bhaskar, Venkataraman, 2013. "Dynamic Countervailing Power under Public and Private Monitoring," CEPR Discussion Papers 9526, C.E.P.R. Discussion Papers.

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    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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