TITLE:
Capacity Choice in a Mixed Duopoly: The Relative Performance Approach
AUTHORS:
Yasuhiko Nakamura, Masayuki Saito
KEYWORDS:
Mixed Duopoly; Relative Profit; Degree of Importance of the Relative Performance
JOURNAL NAME:
Theoretical Economics Letters,
Vol.3 No.2,
April
30,
2013
ABSTRACT: This paper studies capacity choice in a
quantity-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 differences between the output levels and capacity levels between both
the public firm and the private firm strictly depend on both the degrees of
product differentiation and of importance of the private firm’s
relative performance. More precisely, we find that the public firm chooses
over-capacity when both the degrees of importance of the private firm’s
relative performance and of product differentiation are sufficiently high
whereas it chooses under-capacity otherwise, and further the private firm
chooses under-capacity when the degree of importance of its relative
performance is high as compared the degree of product differentiation whereas
it chooses over-capacity otherwise.