Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/287526 
Year of Publication: 
2021
Citation: 
[Journal:] Economic Theory Bulletin [ISSN:] 2196-1093 [Volume:] 9 [Issue:] 1 [Publisher:] Springer International Publishing [Place:] Cham [Year:] 2021 [Pages:] 143-154
Publisher: 
Springer International Publishing, Cham
Abstract: 
We study a variation of the duopoly model by Kreps and Scheinkman (1983). Firms limited by their capacity of production engage in a two stage game. In the first stage they commit to levels of production not exceeding their capacities which are then made common knowledge. In the second stage after production has taken place firms simultaneously compete in prices. Solution of this sequential game shows that the unique Cournot equilibrium outcome as in Kreps and Scheinkman is not always guaranteed. However the Cournot outcome is still robust in the sense that given sufficiently large capacities this equilibrium holds. If capacities are sufficiently small, firms decide to produce at their full capacity and set a price which clears the market at the given level of output.
Subjects: 
Capacity
Cournot
Duopoly competition
Nash equilibrium
Sequential game
JEL: 
D40
D43
L10
L11
L13
L20
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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