Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Monday, March 1, 2010

Bertrand competition with non-rigid capacity constraints

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.

http://lawprofessors.typepad.com/antitrustprof_blog/2010/03/bertrand-competition-with-nonrigid-capacity-constraints.html

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