Limited production capacity leads to unpredictable duopoly price competition outcomes.
The article explores how companies with limited production capacity compete in pricing. They first decide how much to produce based on their capacity, then set prices simultaneously. The study shows that the usual outcome of this competition is not always guaranteed, but if companies have large enough capacities, they tend to reach a stable pricing equilibrium. On the other hand, if their capacities are small, they produce at full capacity and set prices to match the market demand.