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.

***

Suggested citation: I. Bos, M. A. Marini, R. D. Saulle, (2021), 'Myopic Oligopoly Pricing', Nota di Lavoro 9.2021, Milano, Italy: Fondazione Eni Enrico Mattei