Investment under Demand Uncertainty, Ex-Ante Pricing, and Oligopoly

Driver, Ciaran; Goffinet, Fabrice

Abstract

This paper considers the capacity choice of duopolists who set price ex-ante under demand uncertainty with risk-neutrality. The duopolists compete for market shares on the basis of availability of supply, rather than by price competition. Collusive pricing coexists with Cournot–Nash capacity choice. A formal model is presented, where the market share of each firm may deviate from the certainty share due to rationing. With shares reflecting different costs, capacity utilisation for the lower cost firm is expected to be substantially lower. The implications for the price-cost margin and capacity formation are also explored.

Citation

Driver, C., & Goffinet, F. (1998). Investment under Demand Uncertainty, Ex-Ante Pricing, and Oligopoly. Review of Industrial Organization, 13(4), 409-423. https://doi.org/10.1023/A%3A1007747212208

• Journal Article Type: Article
• Publication Date: Jan 1, 1998
• Deposit Date: Aug 15, 2015
• Journal: Review of Industrial Organization
• Print ISSN: 0889-938X
• Electronic ISSN: 1573-7160
• Publisher: Springer
• Peer Reviewed: Peer Reviewed
• Volume: 13
• Issue: 4
• Pages: 409-423
• DOI: https://doi.org/10.1023/A%3A1007747212208