Duopoly price competition with limited capacity

Abstract We study a variation of the duopoly model by Kreps and Scheinkman (1983). Firms limited their capacity production engage in two stage game. In first they commit to levels not exceeding capacities which are then made common knowledge. second after has taken place firms simultaneously compete prices. Solution this sequential game shows that unique Cournot equilibrium outcome as is always guaranteed. However still robust sense given sufficiently large holds. If small, decide produce at full set price clears market level output.