capacity and reaction functions of joint-stock firms

This paper investigates two-stage competition with two jointstock firms. in the first stage, each firm independently chooses a level of capacity. in the second stage, each firm independently chooses an output. the paper shows that each firm’s reaction function has a kink at its installed capacity level. in addition, the paper considers interactions between a jointstock incumbent and a potential jointstock entrant as well as a pair of established jointstock firms. the paper demonstrates that there exist cases in which the jointstock incumbent can deter entry by the potential jointstock entrant.