Note on Cournot Competition Under Yield Uncertainty

Inspired by the U.S. influenza vaccine market, we formulate a Cournot competition model with asymmetric firms facing capacity constraints and yield uncertainty. We derive the equilibrium of this model by defining a score that ranks firms based on their capacity, unit production cost, random yield mean, and variance. In particular, we show a threshold structure. Firms that have scores above a threshold produce at full capacity, while other firms produce less than their capacities in the equilibrium. Finally, for the case of symmetric firms, we correct mistakes in the analysis of Deo and Corbett [Deo S, Corbett CJ (2009) Cournot competition under yield uncertainty: The case of the U.S. influenza vaccine market. Manufacturing Service Oper. Management 11(4):563–576], showing that society can benefit from supplier diversification under weaker conditions.

The online appendices are available at https://doi.org/10.1287/msom.2016.0610.