Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5083586 | International Review of Economics & Finance | 2014 | 13 Pages |
Abstract
This paper studies a capacity choice problem in a duopoly with substitutable goods that is composed of one consumer-friendly firm and one standard absolute profit-maximizing firm in the contexts of both quantity competition and price competition with substitutable goods. In this paper, we assume that the consumer-friendly firm maximizes the weighted sum of its absolute profit and consumer surplus. We show that in the quantity competition, for the consumer-friendly firm, under-capacity is chosen when the extent of the importance of consumer surplus to the consumer-friendly firm is high relative to the degree of product differentiation, whereas over-capacity is chosen otherwise. Moreover, we find that in the price competition, the consumer-friendly firm chooses over-capacity when the extent of importance of consumer surplus to the consumer-friendly firm is high relative to the degree of product differentiation, whereas it chooses under-capacity otherwise. Furthermore, regardless of the extent of the importance of consumer surplus to the consumer-friendly firm and the degree of product differentiation, it is shown that in the quantity competition, the absolute profit-maximizing firm chooses over-capacity, whereas in the price competition, it chooses under-capacity.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Yasuhiko Nakamura,