Wednesday, January 24, 2018

Capacity constrained price competition with transportation costs

Muthers, Johannes and Hunold, Matthias offer thoughts on Capacity constrained price competition with transportation costs.

ABSTRACT: We characterize mixed-strategy equilibria in case of capacity constrained price competition, transportation costs and customer-specific pricing. Equilibrium prices weakly increase in the distance between supplier and customer. Despite prices above costs and excess capacities, the firms exclusively their serve home markets. Competition yields volatile market shares and an inefficient allocation of more distant customers to suppliers. Even ex-post subcontracts may restore efficiency only partly.

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