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G-2026-54

Capacity disclosure, market manipulation, and quantity competition: A two-stage game-theoretic analysis

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This paper examines firm competition in markets where demand depends on firms' announced resource stocks or production capacities. We develop a two-stage model and characterize the conditions under which firms have incentives to manipulate the market when concealing information is costly. In the first stage, firms simultaneously announce their production capacities, which may differ from their actual capacities. In the second stage, they simultaneously choose the quantities supplied to the market. We characterize the unique subgame perfect equilibrium under two product regimes: (i) perishable goods, for which any unsold quantity has no salvage value, and (ii) goods for which unsold inventory retains a positive salvage value. Through analytical sensitivity analysis and numerical simulations, we identify the parametric conditions that determine the emergence of interior and corner equilibria, highlighting the threshold effects that govern firms' strategic behavior. Further, we analyze the case where there is no competition in the market to disentangle the effects of consumers' willingness to pay (WTP) dependence on stock availability from those arising from competition.

, 24 pages

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