SFB 303 Discussion Paper No. A - 343

Author: Corneo, Giacomo G., and Olivier Jeanne
Title: Feasibility of Predatory Pricing in a Capacity-Constrained Duopoly
Abstract: Predatory pricing is feasible only if the minimax profit of a firm is strictly smaller than the expected profit in the corresponding Bertrand-Nash equilibrium. We completely characterize the conditions for feasibility of predatory pricing in Kreps and Scheinkman's model of capacity-constrained duopoly. The predator must have a larger capacity than that of the prey, and than the Cournot capacity too. Surprisingly, predatory pricing may be infeasible not only if the prey is too large but also if it is too small. This result involves a counterintuitive property of Bertrand-Nash equilibria in mixed strategies.
Keywords: Oligopoly, Bertrand Competition, Predation
JEL-Classification-Number: 022, 611
Creation-Date: July, 1991
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