Capacity Choice in a Price-Setting Mixed Oligopoly under Demand Uncertainty
We study a mixed oligopoly market in which firms choose the capacities and prices sequentially in an uncertain environment with differentiated products. If the products of the firms are substitutable and realized demand is higher (lower) than expected demand, we find that both firms hold under (excess) capacity. In the case of medium realized demand, private firm choses under capacity but public firm holds excess capacity. If the products are complements and realized demand is high (low) enough, both firms hold under (excess) capacity. Whenever realized demand is conformable with expectations, private and public firms hold under capacity.
Anderson, S., Palma, A., & Thisse, J.F. 1997. Privatization and efficiency in a differentiated industry. European Economic Review, 41: 1635–1654.
Barcena-Ruiz, J.C., Garzon, M.B. 2007. Capacity Choice in a Mixed Duopoly under Price Competition. Economics Bulletin, 12(26): 1-7.
Basu, K., & Singh, N. 1990. Entry deterrence in stackelberg perfect equilibria. International Economic Review, 31: 61–71.
Cremer, H., Marchand, M., & Thisse, J.F. 1989. The public firm as an instrument for regulating an oligopolistic market. Oxford Economic Papers, 41: 283–301.
De Fraja, G., & Delbono, F., 1990. Game theoretic models of mixed oligopoly. Journal of Economic Surveys, 4: 1–17.
Dixit, A. 1980. The Role of Investment in Entry Deterrence. Economic Journal, 90: 95–106.
Lu, Y., & Poddar, S. 2005. Mixed Oligopoly and the Choice of Capacity. Research in Economics, 59: 365-374.
Lu, Y., & Poddar, S. 2006. The Choice of Capacity in Mixed Duopoly under Demand Uncertainty. The Manchester School, 74(3): 266-272.
Nett, L. 1993. Mixed oligopoly with homogeneous goods. Annals of Public and Cooperative Economics, 64: 367–393.
Nishimori, A., & Ogawa, H. 2004. Do Firms Always Choose Excess Capacity? Economics Bulletin, 12(2): 1–7.
Ogawa, H. 2006. Capacity Choice in the Mixed Duopoly with Product Differentiation. Economics Bulletin, 12(8): 1-6.
Spence, A.M. 1977. Entry, Capacity, Investment and Oligopolistic Pricing. Bell Journal of Economics, 8: 534–544.
Tirole, J. 1988. The Theory of Industrial Organization. Cambridge, MA: MIT Press.
Wen, M., & Sasaki, D. 2001. Would Excess Capacity in Public Firm be Socially Optimal? Economic Record, 77: 283-290.
White, M. 1997. Mixed Oligopoly, Privatization and Subsidization. Economics Letters, 53: 189–195.