Multiregional Oligopoly with Capacity Constraints

39 Pages Posted: 3 Dec 2018 Last revised: 23 Jan 2019

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: January 21, 2019

Abstract

We develop a model of Cournot competition between capacity-constrained firms that sell a single good to multiple regions. We characterize the unique equilibrium allocation of the good across regions and provide a convergent algorithm for computing it. We show that a reduction in transportation costs may negatively impact the overall consumer welfare if the impacted firm is capacity constrained. Our results imply that policies promoting free trade may have unintended consequences and reduce consumer surplus in capacity-constrained industries. We calibrate our model to the international market of fertilizers and show that the model accurately predicts prices across regions and over time.

Keywords: Cournot competition, oligopoly, networks, capacity constraints, non-cooperative games, consumer 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 (January 21, 2019). 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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