Strategic Pricing with Customer Rationing: The Case of Primary Metals
AbstractFirms in primary-metal industries often charge subcompetitive prices and, in periods of high demand, they may ration their customers. A model is developed to explain these empirical regularities. In the model, firms with market power are aware that the price they charge today affects their demand tomorrow. In addition, the strategic interactions among firms reinforces this intertemporal effect. In the equilibrium of the two-state game, oligopolists can price below marginal cost. And, when capacity constraints are introduced, the equilibrium can involve rationing. Model predictions are assessed using market-structure and technology data for several primary-metal industries.
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Bibliographic InfoArticle provided by Canadian Economics Association in its journal Canadian Journal of Economics.
Volume (Year): 24 (1991)
Issue (Month): 1 (February)
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Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
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