A general model of price competition with soft capacity constraints

Présentation de Nicolas DROUHIN (ENS Paris-Saclay et CREST)

Nicolas Drouhin (Ecole Normale Supérieure Paris-Saclay et CREST)
En coll. avec Marie-Laure Cabon-Dhersin


Abstract :
We propose a general model of oligopoly with firms relying on a two factor production function. In a rst stage, rms choose a certain xed factor level. In the second stage, firms compete on price, and adjust the variable factor to satisfy all the demand. When the factors are substitutable, the capacity constraint is soft", implying a convex cost function in the second stage. We show that there exists a continuum of equilibria in pure strategies, whatever the returns to scale. Among them a payoff -dominant one can always be selected. The equilibrium price may increase with the number of firms.

Key words: price competition, tacit collusion, convex cost, capacity con-straint, limit pricing strategy, returns to scale.

Code JEL: L13, D43