NDLI: Price and Capacity Competition

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Price and Capacity Competition

Content Provider	World eBook Library
Author	Acemoglu, Daron
Organization	World Library Foundation
Temporal Coverage	Non-fiction
Copyright Year	2006
Abstract	We study the efficiency of oligopoly equilibria in a model where firms compete over capacities and prices. The motivating example is a communication network where service providers invest in capacities and then compete in prices. Our model economy corresponds to a two-stage game. First, firms (service providers) independently choose their capacity levels. Second, after the capacity levels are observed, they set prices. Given the capacities and prices, users (consumers) allocate their demands across the firms. We first establish the existence of pure strategy subgame perfect equilibria (oligopoly equilibria) and characterize the set of equilibria. These equilibria feature pure strategies along the equilibrium path, but off-the-equilibrium path they are supported by mixed strategies. We then investigate the efficiency properties of these equilibria, where efficiency is defined as the ratio of surplus in equilibrium relative to the first best. We show that efficiency in the worst oligopoly equilibria of this game can be arbitrarily low. However, if the best oligopoly equilibrium is selected (among multiple equilibria), the worst-case efficiency loss has a tight bound, approximately equal to 5/6 with 2 firms
Related Links	http://Community.eBookLibrary.org/eBooks/WPLBN0093102640-Price-and-Capacity-Competition-by-Acemoglu--Daron.aspx
Starting Page	1
Ending Page	52
Page Count	52
File Format	PDF
Language	English
Publisher	Cambridge, Ma : Massachusetts Institute of Technology, Dept. of Economics
Publisher Date	2006-01-01
Part of Series	The Boston Library Consortium
Access Restriction	Subscribed
Subject Keyword	Oligopolies World library foundation
Content Type	Text
Resource Type	Book

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