Non-Linear Pricing Competition with Private Capacity Information

25 Pages Posted: 29 Mar 2015 Last revised: 31 Mar 2015

Hamid Nazerzadeh

University of Southern California - Marshall School of Business

Georgia Perakis

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: March 27, 2015

Abstract

We study a common agency model with informed principals consisting of two capacity-constrained suppliers and a single retailer. The capacity of each supplier is her private information. Conditioned on their capacities, the suppliers simultaneously and non-cooperatively offer quantity-price schedules to the retailer. Then, the retailer decides on the quantities to purchase from each supplier in order to maximize his own utility. We prove the existence of a (pure strategy) Nash equilibrium for this game. We show that at the equilibrium each (infinitesimal) unit of the supply is assigned a marginal price which is independent of the capacities and depends only on the valuation function of the retailer and the distribution of the capacities. In addition, the supplier with the larger capacity sells all her supply.

Keywords: common agency, informed principals, supply chain, non-linear pricing

JEL Classification: D43

Suggested Citation

Nazerzadeh, Hamid and Perakis, Georgia, Non-Linear Pricing Competition with Private Capacity Information (March 27, 2015). Available at SSRN: https://ssrn.com/abstract=2586265 or http://dx.doi.org/10.2139/ssrn.2586265

Hamid Nazerzadeh (Contact Author)

University of Southern California - Marshall School of Business ( email )

Bridge Memorial Hall
Los Angeles, CA 90089
United States

HOME PAGE: http://www-bcf.usc.edu/~nazerzad/

Georgia Perakis

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

77 Massachusetts Ave.
E62-416
Cambridge, MA 02142
United States

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