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Kreps And Scheinkman With Product Differentiation: An Expository Note

By Stephen Martin


Kreps and ScheinkmanĀ“s (1983) celebrated result is that in a two-stage model of a market with homogeneous products in which firms noncooperatively pick capacities in the first stage and set prices in the second stage, the equilibrium outcome is that of a one-shot Cournot game. This note derives capacity reaction functions for the first stage and extends the Kreps and Scheinkman result to the case of differentiated products.Cournot model, Bertrand model; Kreps and Scheinkman model; product differentiation

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