Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/249967 
Year of Publication: 
2021
Series/Report no.: 
Working Paper No. 032.2021
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 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 oers a pure-strategy solution when there is none in Nash terms. It particularly provides a behavioral rationale for di erent pricing patterns, including Edgeworth price cycles and states of hypercompetition 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.
Subjects: 
Bounded Rationality
Capacity Constraints
Mergers
Myopic Stable Set
Oligopoly Pricing
Supply Shortages
JEL: 
C72
D43
L13
Document Type: 
Working Paper

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