Preemption in Capacity and Price Determination: A Study of Endogenous Timing of Decisions for Homogeneous Markets

Endogenous timing can help in deriving the time structure of decision making instead of assuming it as exogenously given. In our study we consider a homogeneous market where, as in the model of Kreps and Scheinkman (Bell Journal of Economics, 14 (1983), pp. 326–37), sellers determine ‘sales capacities’ before prices. Sellers must serve customers, but at higher costs when demand exceeds ‘capacity’. Our model allows for preemption in ‘capacity’ as well as in price determination. Since preemption means to decide before the random choice of cost parameters reflecting the stochastic nature of (excess) ‘capacity’ costs, preemptive commitments are not obviously better timing dispositions.