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Competitive Spacial Price Discrimination With Capacity Constraints

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Abstract

A model of duopolistic spatial price discrimination on a network is extended by adding capacity constraints on firms' outputs. With zero-one consumer demands, some configurations of capacity levels and locations do not have pure strategy Nash equilibria in price schedules, in particular when firms have some excess capacity but not enough to serve the entire market individually. An alternative to the mixed strategy Nash equilibrium in price schedules—the core of the market game among producers and consumers—is described and shown to have allocations corresponding to pure strategies for all location and capacity configurations. If both firms have some excess capacity, price schedules are identical to those in the uncapacitated problem. Equilibrium prices are no higher than the lowest prices in the mixed strategy Nash equilibria.
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Suggested Citation

  • Hamilton, J.H & Thisse, J-F., 1990. "Competitive Spacial Price Discrimination With Capacity Constraints," Papers 90-3, Florida - College of Business Administration.
    • Handle: RePEc:fth:florbu:90-3
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    Cited by:

    1. Hunold, Matthias & Muthers, Johannes, 2019. "Spatial competition and price discrimination with capacity constraints," International Journal of Industrial Organization, Elsevier, vol. 67(C).
    2. Phillip J. Lederer, 2020. "Location-Price Competition with Delivered Pricing and Elastic Demand," Networks and Spatial Economics, Springer, vol. 20(2), pages 449-477, June.

    More about this item

    Keywords

    duopolies ; consumption ; economic equilibrium ; pricing;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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