FEEM working papers "Note di lavoro"
2021.32
Date: 23/12/2021

Myopic Oligopoly Pricing


Authors:

Iwan Bos, Maastricht University; Marco A. Marini, Sapienza University of Rome; Riccardo D. Saulle, University of Padova

JEL n.: C72, D43, L13
Keywords: Bounded Rationality, Capacity Constraints, Mergers, Myopic Stable Set, Oligopoly Pricing, Supply Shortages

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 mixedstrategy 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.

***
Suggested citation: I. Bos, M. A. Marini,  R. D. Saulle (2021), 'Myopic Oligopoly Pricing', Nota di Lavoro 32.2021, Milano, Italy: Fondazione Eni Enrico Mattei

Download file
Download file
Myopic Oligopoly Pricing

FEEM Newsletter & Update

Subscribe to stay connected.

Your data will be processed by FEEM - Eni Enrico Mattei Foundation - Data Controller - to receive the Foundation's Newsletter & Update via e-mail. To send the requested information, the Data Controller uses e-mail sending service providers established in the U.S.A .: for this, your consent to the transfer of your email address to the U.S.A. is required, without which it will not be possible to comply with your request. We invite you to consult the complete information to obtain detailed information to protect your rights.