Both quality differentiation and capacity commitment have been shown to relax price competition. However, their joint influence on the outcome of price competition has not yet been assessed. In this article, we consider a three stage game in which firms choose quality, then commit to capacity...

In a capacity-then-price-setting game we experimentally identify capacity precommitment, the possibility to communicate before price choices, and prior competition experience as crucial factors for collusive pricing. The theoretical analysis determines the capacity thresholds above which firms...