Capacity precommitment and price competition yield the Cournot outcome

We introduce a simple model of oligopolistic competition where firms first build capacity, and then, after observing the capacity decisions, choose a reservation price at which they are willing to supply their capacities. This model describes many markets more realistically than the model of Kreps and Scheinkman Kreps, D., Scheinkman, J., 1983. Quantity precommitment and Bertrand competition yield Cournot outcomes. Bell J. Econ. 14, 326–337]. We show that in this new model every pure strategy equilibrium yields the Cournot outcome, and that the Cournot outcome can be sustained by a pure strategy subgame perfect equilibrium.