Monday, March 1, 2010
Posted by D. Daniel Sokol
Prabal Roy Chowdhury (Indian Statistical Institute, New Delhi) offers his thoughts on Bertrand competition with non-rigid capacity constraints.
ABSTRACT: We examine a model of Bertrand competition with non-rigid capacity constraints, so that by incurring an additional per unit cost of capacity expansion, firms can produce beyond capacity. We find that there is an interval of prices such that a price can be sustained as a pure strategy Nash equilibrium if and only if it lies in this interval. We then examine the properties of this set as [a] the number of firms becomes large and [b] the capacity cost increases.