Constraints on Capacity: An Overview

Capacity constraints refer to the circumstance where a firm is bounded away from the potential demand due to an upper limit of production or inventory installation. Since Levitan and Shubiks seminal paper, the last half century has witnessed a flourish in economic theories exploring equilibrium under constraints on capacity. This paper examines 69 papers related to capacity constraints, with a specific focus on economic theory. We exercise taxonomy via building literature roadmaps, and explores the linkages among the extant literature. Oligopolistic models under limited capacity pivot around Bertrand and Cournot benchmarks with multiple expansions, while monopolistic papers highlight firms strategic use of scarcity through optimal pricing schemes or consumers learning manipulation via signalling or persuasion. Moreover, this paper specifically addresses queueing systems from the perspective of customer behaviour, server behaviour, and competition. Our systematic integration of the identified papers possesses both theoretical and empirical significance, disclosing new paths for future research.