Spatial competition with capacity constraints and subcontracting

by Matthias Hunold, Johannes Muthers

We characterize mixed-strategy equilibria when capacity constrained suppliers can charge location-based prices to different customers. We establish an equilibrium with prices that weakly increase in the costs to supply a customer. Despite prices above costs and excess capacities, each supplier exclusively serves its home market in equilibrium. Competition yields volatile market shares and an inefficient allocation of customers to firms. Even ex-post cross-supplies may restore efficiency only partly. We use our findings to discuss recent competition policy cases and provide hints for a more refined coordinated-effects analysis.

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Year of publication:	[2018]
Authors:	Hunold, Matthias ; Muthers, Johannes
Publisher:	Linz-Auhof, Austria : Department of Economics, Johannes Kepler University of Linz
Subject:	Bertrand-Edgeworth \| capacity constraints \| inefficient competition \| spatial price discrimination \| subcontracting \| transport costs \| Transportkosten \| Transport costs \| Räumlicher Wettbewerb \| Spatial competition \| Theorie \| Theory \| Produktionskapazität \| Production capacity \| Lieferantenmanagement \| Supplier relationship management \| Räumliche Preistheorie \| Spatial price competition \| Preismanagement \| Pricing strategy \| Preisdifferenzierung \| Price discrimination \| Duopol \| Duopoly \| Kapazitätsplanung \| Capacity planning