INVESTMENT UNDER DEMAND UNCERTAINTY, EX-ANTE PRICING, AND OLIGOPOLY

This paper considers the capacity choice of duopolists who set price e x-ante under demand uncertainty with risk-neutrality. The duopolists c ompete for market shares on the basis of availability of supply, rathe r than by price competition. Collusive pricing coexists with Cournot-N ash capacity choice. A formal model is presented, where the market sha re of each firm may deviate from the certainty share due to rationing. With shares reflecting different costs, capacity utilisation for the lower cost firm is expected to be substantially lower. The implication s for the price-cost margin and capacity formation are also explored.