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Nicolas DROUHIN (CREST- ENS Paris Saclay) – "A general model of price competition with soft capacity constraints" joint work with Marie-Laure Cabon-Dhersin
The Microeconomics Seminar: Every Wednesday at 12:15 pm.
Time: 12:15 pm – 1:30 pm
Date: 6th of December 2017
Place: Room 3001.
Nicolas DROUHIN (CREST – ENS Paris Saclay) – “A general model of price competition with soft capacity constraints” joint work with Marie-Laure Cabon-Dhersin
Abstract: We propose a general model of oligopoly with firms relying on a two factor production function. In a first stage, firms choose a certain fixed factor level (capacity). In the second stage, firms compete on price, and adjust the variable factor to satisfy all the demand. When the factors are substitutable, the capacity constraint is “soft”, implying a convex cost function in the second stage. We show that there is a unique equilibrium prediction in pure strategies, whatever the returns to scale, characterized by a price that increases with the number of firms up to a threshold. The main propositions are established under the general assumption that the production function is quasi-concave but the paper provides a general methodology allowing the model to be solved numerically for specific parametrical forms.
Marie-Laure Allain, Pierre Boyer, Laurent Linnemer & Morgane Cure (CREST)
Link (before 3rd of December 2017)