TITLE:
Capacity Choice in a Price-Setting Mixed Duopoly: The Relative Performance Approach
AUTHORS:
Yasuhiko Nakamura, Masayuki Saito
KEYWORDS:
Mixed Duopoly; Relative Profit; Price Competition
JOURNAL NAME:
Modern Economy,
Vol.4 No.4,
April
30,
2013
ABSTRACT: This paper analyzes the capacity choice
issue under a price-setting mixed duopoly with differentiated goods, when the
objective function of the private firm is its relative profit. In this paper,
we show that the public firm chooses over-capacity irrespective of the degree
of product differentiation and the degree of importance of the relative performance
of the private firm. In contrast, we find that the difference between the
output and capacity levels of the private firm strictly depends on both the
degree of product differentiation and the degree of importance of its relative
performance. More precisely, the private firm chooses over-capacity when the
degree of importance of its relative performance is high relative to the degree
of product differentiation, whereas it chooses under-capacity otherwise.