FEEM working papers "Note di lavoro"
2021.09
Date: 30/3/2021

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: Behavioral IO, Bounded Rationality, Capacity Constraints, Oligopoly Pricing, Myopic Stable Set

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.

***

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

Download file
Download file

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.