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Bertrand Competition with Non-rigid Capacity Constraints

Prabal, Roy Chowdhury (2008): Bertrand Competition with Non-rigid Capacity Constraints.

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Abstract

We examine a model of Bertrand competition with non-rigid capacity constraints, so that by incurring an additional cost, firms can produce beyond capacity. We find that there is an interval of prices such that a price can be sustained as a pure strategy Nash equilibrium if and only if it lies in this interval. We then examine the properties of this set as (a) the number of firms becomes large and (b) the capacity cost increases.

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