Abstract:

Market competition can lead to a mismatch between supply and demand. Capacity sharing is a common practice to combine excessive capacity with excessive demand. In order to investigate the transformation efficiency and sunk costs on capacity sharing between competing firms， a capacity-sharing non-cooperative game model is constructed consisting of two symmetrically competing firms and the game model of no capacity sharing with capacity sharing is compared， and the effects of consumer segmentation， firm capacity and capacity transformation efficiency on firms’ capacity sharing strategies and profitability are analyzed. The results show that promising an excessive capacity sharing price does not necessarily improve firms’ profitability， capacity sharing can soften firms’ price competition， and the optimal capacity sharing price and equilibrium expected profit are non-monotonically influenced by price-sensitive buyers. The impact of firms’ capacity and substitutability on them depends on capacity conversion efficiency. There is a sunk cost threshold effect on the profitability of capacity sharing. More price-sensitive buyers， larger capacity capacity and lower capacity conversion efficiency inhibit this effect and reduce the likelihood of firms reaching capacity sharing.

Key words: conversion efficiency, capacity sharing, supply and demand matching, price competition