We analyze endogenous capacity formation in a large frictional market with perfectly divisible goods. Each seller posts a price and decides on a capacity. The buyers base their decision on which seller to visit on both characteristics. In this setting we determine the conditions for the existence and uniqueness of a symmetric equilibrium. When capacity is unobservable there exists a continuum of equilibria. We show that the "best" of these equilibria leads to the same seller capacities and the same number of trades as the symmetric equilibrium under observable capacity. © 2014 Godenhielm, Kultti.
CITATION STYLE
Godenhielm, M., & Kultti, K. (2014). Capacity choice in a large market. PLoS ONE, 9(8). https://doi.org/10.1371/journal.pone.0101766
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