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Time competition is capability competition

Author: Loch, Christoph H. INSEAD Area: Technology and Operations Management Series: Working Paper ; 94/30/TM Publisher: Fontainebleau : INSEAD, 1994.Language: EnglishDescription: 22 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: This paper examines the nature of oligopolistic time competition equilibria in a market where customers are price-sensitive and impatient, and firms engage in quantity of price competition. Customers are all equally impatient and subscribe to the products, and firms are represented by M/G/1 queues. The first result shows that the oligopolists produce a higher quantity in equilibrium than a monopolist with the same facilities. Price competition causes more aggressive firm behavior than quantity competition, but not the full welfare-maximizing amount predicted by the Bertrand price competition model without impatience. Second, as long as the firms have equal capabilities, the equilibrium is symmetric, that is, firms divide the market equally and charge the same prices. It is thus not possible that a competitive equilibrium with spontaneous differentiation into high and low service niches arises, nor is it possible that one firm unilaterally chooses to concentrate on low volume/fast delivery in equilibrium
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This paper examines the nature of oligopolistic time competition equilibria in a market where customers are price-sensitive and impatient, and firms engage in quantity of price competition. Customers are all equally impatient and subscribe to the products, and firms are represented by M/G/1 queues. The first result shows that the oligopolists produce a higher quantity in equilibrium than a monopolist with the same facilities. Price competition causes more aggressive firm behavior than quantity competition, but not the full welfare-maximizing amount predicted by the Bertrand price competition model without impatience. Second, as long as the firms have equal capabilities, the equilibrium is symmetric, that is, firms divide the market equally and charge the same prices. It is thus not possible that a competitive equilibrium with spontaneous differentiation into high and low service niches arises, nor is it possible that one firm unilaterally chooses to concentrate on low volume/fast delivery in equilibrium

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