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DYNAMIC PRICE COMPETITION WITH CAPACITY CONSTRAINTS AND A STRATEGIC BUYER
Author(s) -
Anton James J.,
Biglaiser Gary,
Vettas Nikolaos
Publication year - 2014
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/iere.12077
Subject(s) - microeconomics , competition (biology) , order (exchange) , value (mathematics) , economics , sequential game , dynamic pricing , nash equilibrium , simple (philosophy) , business , industrial organization , game theory , computer science , finance , ecology , biology , philosophy , epistemology , machine learning
We analyze a simple dynamic durable good model. Two incumbent sellers and potential entrants choose their capacities at the start of the game. We solve for equilibrium capacity choices and the (necessarily mixed) pricing strategies. In equilibrium, the buyer splits the order with positive probability to preserve competition, making it possible that a high and low price seller both have sales. Sellers command a rent above the value of unmet demand by the other seller. A buyer benefits from either a commitment not to make future purchases or by hiring an agent to always buy from the lowest priced seller.