Quantity Competition in the Presence of Strategic Consumers

61 Pages Posted: 24 Dec 2013 Last revised: 1 Feb 2015

See all articles by Andrei V. Bazhanov

Andrei V. Bazhanov

Queen's University - Smith School of Business

Yuri Levin

Queen's University - Smith School of Business

Mikhail Nediak

Queen's University - Smith School of Business

Date Written: January 28, 2015

Abstract

Oligopolistic retailers decide on the initial inventories of an undifferentiated limited-lifetime product offered to strategic consumers. A manufacturer sets the first-period (full) price, while the second-period (clearance) price is determined by a market clearing process. The resulting symmetric pure-strategy equilibria may lead to no sales in the first or second period (Cournot outcome versus collusion), and sales in both periods with the clearance price above or at the salvage value. The equilibria possess a comprehensive set of monotonic properties. In particular, increasing strategic behavior can benefit retailers and hurt consumers, increasing competition may harm the local economy, and high levels of strategic behavior may insure against oversupply that leads to clearance sales at the salvage value. The welfare-optimal number of retailers can lead to the above-cost clearance price.

Keywords: oligopoly, Nash-Cournot, strategic consumers

JEL Classification: L13, D11, D43

Suggested Citation

Bazhanov, Andrei V. and Levin, Yuri and Nediak, Mikhail, Quantity Competition in the Presence of Strategic Consumers (January 28, 2015). Available at SSRN: https://ssrn.com/abstract=2371728 or http://dx.doi.org/10.2139/ssrn.2371728

Andrei V. Bazhanov

Queen's University - Smith School of Business ( email )

Smith School of Business - Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Yuri Levin

Queen's University - Smith School of Business ( email )

Smith School of Business - Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Mikhail Nediak (Contact Author)

Queen's University - Smith School of Business ( email )

Smith School of Business - Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

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