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Capacity Choice in a Price-Setting Mixed Duopoly: The Relative Performance Approach

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DOI: 10.4236/me.2013.44031    4,088 Downloads   5,895 Views   Citations

ABSTRACT

This paper analyzes the capacity choice issue under a price-setting mixed duopoly with differentiated goods, when the objective function of the private firm is its relative profit. In this paper, we show that the public firm chooses over-capacity irrespective of the degree of product differentiation and the degree of importance of the relative performance of the private firm. In contrast, we find that the difference between the output and capacity levels of the private firm strictly depends on both the degree of product differentiation and the degree of importance of its relative performance. More precisely, the private firm chooses over-capacity when the degree of importance of its relative performance is high relative to the degree of product differentiation, whereas it chooses under-capacity otherwise.

Conflicts of Interest

The authors declare no conflicts of interest.

Cite this paper

Y. Nakamura and M. Saito, "Capacity Choice in a Price-Setting Mixed Duopoly: The Relative Performance Approach," Modern Economy, Vol. 4 No. 4, 2013, pp. 273-280. doi: 10.4236/me.2013.44031.

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