Abstract
This paper examines capacity-constrained oligopoly pricing with sellers who seek myopic improvements. We employ the Myopic Stable Set solution concept and establish the existence of a unique pure-strategy price solution for any given level of capacity. This solution is shown to coincide with the set of pure-strategy Nash equilibria when capacities are large or small. For an intermediate range of capacities, it predicts a price interval that includes the mixed-strategy support. This stability concept thus encompasses all Nash equilibria and offers a pure-strategy solution when there is none in Nash terms. It particularly provides a behavioral rationale for different pricing patterns, including Edgeworth price cycles and states of hyper-competition with supply shortages. We also analyze the impact of a change in firm size distribution. A merger among the biggest firms may lead to more price dispersion as it increases the maximum and decreases the minimum myopically stable price.
Original language | English |
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Pages (from-to) | 377-412 |
Number of pages | 36 |
Journal | Games and Economic Behavior |
Volume | 145 |
DOIs | |
Publication status | Published - 1 May 2024 |
JEL classifications
- c72 - Noncooperative Games
- d43 - Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection
- l13 - Oligopoly and Other Imperfect Markets
Keywords
- Bounded rationality
- Edgeworth price cycles
- Myopic stable set
- Oligopoly pricing
- Supply shortages