On the Relationship Between Quantity Precommitment and Cournot Games
Amr Farahat, Woonghee Tim Huh, Hongmin Li
Operations Research · 2019 · Volume 67 · Issue 1
Abstract
We study a two-stage deterministic differentiated-product oligopoly competition game, called the quantity precommitment game, in which firms compete on quantity in the first stage and then compete on price in the second stage. We compare this game with a single-stage Cournot game, in which firms compete on quantity only and prices are set to clear the market. We show that any equilibrium of the quantity precommitment game is an equilibrium of the Cournot game under certain conditions that allow for commonly used demand functions and general spill models. Our approach yields insight into key properties that enable this relationship to hold. The electronic companion is available at https://doi.org/10.1287/opre.2018.1760 .
Keywords
competition, quantity and capacity decisions, pricing, differentiated products, substitution, spill effects
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