Multiregional Oligopoly with Capacity Constraints

Forthcoming in Management Science

47 Pages Posted: 3 Dec 2018 Last revised: 7 Jul 2020

See all articles by Humoud Alsabah

Humoud Alsabah

Columbia University

Benjamin Bernard

University of California, Los Angeles (UCLA) - Department of Economics

Agostino Capponi

Columbia University

Garud Iyengar

Columbia University - Department of Industrial Engineering and Operations Research (IEOR)

Jay Sethuraman

Columbia University

Date Written: June 6, 2020

Abstract

We develop a model of Cournot competition between capacity-constrained firms that sell a single good to multiple regions. We provide a novel characterization for the unique equilibrium allocation of the good across regions and design an algorithm to compute it. We show that a reduction in transportation costs by a firm may negatively impact the profit of all firms and reduce aggregate consumer surplus if such a firm is capacity constrained. Our results imply that policies promoting free trade may have unintended consequences and reduce aggregate welfare in capacity-constrained industries.

Keywords: Cournot competition, oligopoly, networks, capacity constraints, non-cooperative games, welfare

JEL Classification: C72, D21, D43, F12, H25, L13

Suggested Citation

Alsabah, Humoud and Bernard, Benjamin and Capponi, Agostino and Iyengar, Garud and Sethuraman, Jay, Multiregional Oligopoly with Capacity Constraints (June 6, 2020). Forthcoming in Management Science, Available at SSRN: https://ssrn.com/abstract=3280688 or http://dx.doi.org/10.2139/ssrn.3280688

Humoud Alsabah (Contact Author)

Columbia University

S. W. Mudd Building
New York, NY 10027
United States

Benjamin Bernard

University of California, Los Angeles (UCLA) - Department of Economics ( email )

8283 Bunche Hall
Los Angeles, CA 90095-1477
United States

Agostino Capponi

Columbia University ( email )

S. W. Mudd Building
New York, NY 10027
United States

Garud Iyengar

Columbia University - Department of Industrial Engineering and Operations Research (IEOR) ( email )

331 S.W. Mudd Building
500 West 120th Street
New York, NY 10027
United States
+1 212-854-4594 (Phone)
+1 212-854-8103 (Fax)

Jay Sethuraman

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

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