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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