International Journal of Management, Accounting and Economics
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Volume 3, No. 3, March 2016 Pages: 166 - 173
Capacity and Reaction Functions of Joint-Stock Firms
This paper investigates two-stage competition with two joint-stock firms. In the first stage, each firm independently chooses a level of capacity. In the second stage, each firm independently chooses an output. The paper shows that each firm’s reaction function has a kink at its installed capacity level. In addition, the paper considers interactions between a joint-stock incumbent and a potential joint-stock entrant as well as a pair of established joint-stock firms. The paper demonstrates that there exist cases in which the joint-stock incumbent can deter entry by the potential joint-stock entrant.
Capacity, joint-stock firm, reaction function, entry.
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