Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/233094 
Year of Publication: 
2021
Series/Report no.: 
Working Paper No. 009.2021
Publisher: 
Fondazione Eni Enrico Mattei (FEEM), Milano
Abstract: 
This paper examines capacity-constrained oligopoly pricing with sellers who seek myopic improvements. We employ the Myopic Stable Set stability 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. In particular, it provides a behavioral rationale for different types of pricing dynamics, including real-world economic phenomena such as Edgeworth-like price cycles, price dispersion and supply shortages.
Subjects: 
Behavioral IO
Bounded Rationality
Capacity Constraints
Oligopoly Pricing
Myopic Stable Set
JEL: 
C72
D43
L13
Document Type: 
Working Paper

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