Relaxing Bertrand Competition: Capacity Commitment Beats Quality Differentiation
(1999)
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cerec1999_2.pdf
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- Abstract
- Both product differentiation through quality and capacity commitment have been shown to relax price competition. However, they have not been considered simultaneously. To this end we consider a three stage game where rms choose quality then commit to capacity and nally compete in price. We show that in equilibrium, rms differentiate their products less than if they were not able to commit to limited capacities. This is because they are able to enjoy Cournot pro ts at the stage where capacity are chosen. Furthermore if the cost of quality is low, capacity pre-commitment completely eliminates the incentives to differentiate.
- Affiliations
Citations
Wauthy, X., & Boccard, N. (1999). Relaxing Bertrand Competition: Capacity Commitment Beats Quality Differentiation (CEREC Working Papers 1999/2).