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The Strategic Effects of Batch Processing[Note 2. Manuscript received November 1997; revised July 1999. ...]
Author(s) -
Gresik Thomas A.,
Mansley Edward C.
Publication year - 2001
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/1468-2354.00130
Subject(s) - subgame perfect equilibrium , cournot competition , commit , production (economics) , duopoly , economics , microeconomics , yield (engineering) , batch production , industrial organization , nash equilibrium , computer science , operations management , materials science , database , metallurgy
We study a duopoly game in which firms commit to a batch technology before competing in sales quantities. Adopting a batch technology requires the quantity produced to equal an integer number of batches and allows sales to be less than production. When larger batch sizes lower unit production costs (as in the U.S. airline industry with its economies of density), subgame perfect equilibrium sales quantities are unique and more competitive than the Cournot equilibrium quantities of a one‐shot game with continuous total cost functions. When larger batch sizes yield higher unit costs, equilibrium production can exceed equilibrium sales.