Capacity, Output, and Sequential Entry: Reply
回应Reynolds的评论，论证即使采用子博弈完美均衡概念，原模型关于Sylos假设和过剩产能假说的结论仍然稳健，并澄清了Reynolds的误解。
In his comment, Stanley Reynolds provides a very interesting application of subgame perfect equilibrium concept to my 1981 model.' Reynolds claims that contrary to my analysis, the Sylos Postulate and excess capital investment need not be inconsistent with Nash equilibrium (p. 896). It is not overly surprising if characteristics of equilibrium are altered by applying a different solution concept. However, conclusions arrived at in my earlier paper regarding Sylos Postulate and Excess Capacity Hypothesis are quite robust to changes in equilibrium. Reynold's assertion that behavior of incumbent at subgame perfect equilibrium is consistent with Sylos Postulate or Excess Capacity Hypothesis is based on a misunderstanding of these concepts. As Reynolds notes, two-period, openloop Nash equilibrium with capacity as an upper bound on output, which was examined in my earlier paper, is also a subgame perfect equilibrium. Thus, all of results for this case still hold. In particular, monopolist will deter only if capacity level without threat of exceeds entry-deterring level. This requires capacity to be relatively inexpensive as compared to discounted marginal profit evaluated at blocking output (Proposition 1 and equation (4) of my paper). Thus, the Sylos Postulate is only satisfied in this limited sense (p. 506). The established firm may choose, however, to permit entry. When occurs, established firm always operates at full capacity before entry, thus contradicting Excess Capacity Hypothesis. When capacity is relatively inexpensive, established firm lowers its output to accommodate entrant and holds excess capacity after entry, thus contradicting Sylos Postulate. For case where capacity investment affects production costs, entrant and incumbent firm behavior at subgame perfect equilibrium reinforces my conclusion that the Sylos Postulate ignores both strategic interaction between firms and dynamic aspects of entry (p. 503). The established firm at subgame perfect equilibrium will not deter whether or not it is profitable to do so. Rather, will be deterred only if