Dynamic Price Competition with Capacity Constraints and Strategic Buyers

46 Pages Posted: 20 Apr 2004

See all articles by Gary Biglaiser

Gary Biglaiser

University of North Carolina

Nikolaos Vettas

Athens University of Economics and Business - Department of Economics; National and Kapodistrian University of Athens - Faculty of Economics; Centre for Economic Policy Research (CEPR)

Date Written: March 2004

Abstract

We analyse a set of simple dynamic models where sellers are capacity constrained over the length of the model. Buyers act strategically in the market, knowing that their purchases may affect future prices. The model is examined when there are single and multiple buyers, with both linear and non-linear pricing. We find that, in general, there are only mixed strategy equilibria and that sellers get a rent above the amount needed to satisfy the market demand that the other seller cannot meet. Buyers would like to commit not to buy in the future. Furthermore, sellers' market shares tend to be maximally asymmetric with high probability, even though they are ex ante identical.

Keywords: Capacity constraints, bilateral oligopoly, linear and non-linear pricing

JEL Classification: D43, L13, L14, L22

Suggested Citation

Biglaiser, Gary and Vettas, Nikolaos, Dynamic Price Competition with Capacity Constraints and Strategic Buyers (March 2004). Available at SSRN: https://ssrn.com/abstract=533222

Gary Biglaiser

University of North Carolina ( email )

Chapel Hill, NC 27599
United States
919-966-4884 (Phone)
919-966-4986 (Fax)

Nikolaos Vettas (Contact Author)

Athens University of Economics and Business - Department of Economics ( email )

76 Patission Street
GR-10434 Athens
Greece
+30 210 8203179 (Phone)

National and Kapodistrian University of Athens - Faculty of Economics ( email )

8 Pesmazoglou street
GR-10559 Athens
Greece
+30 210 8203179 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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