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Market Making Oligopoly

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  • SIMON LOERTSCHER

Abstract

This paper analyzes price competition between market makers who set costly capacity constraints before they intermediate between producers and consumers. The unique equilibrium outcome with pure strategies at the capacity stage is the Cournot outcome. The paper thus provides a rationale for Cournot‐type competition between market makers. This contrasts with previous findings in the literature, where due to the absence of capacity constraints that are set ex ante the Bertrand result typically obtains.

Suggested Citation

  • Simon Loertscher, 2008. "Market Making Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 56(2), pages 263-289, June.
  • Handle: RePEc:bla:jindec:v:56:y:2008:i:2:p:263-289
    DOI: 10.1111/j.1467-6451.2008.00341.x
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    References listed on IDEAS

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    Cited by:

    1. Tasnádi, Attila & Bakó, Barna, 2014. "A Kreps-Scheinkman-állítás érvényessége lineáris keresletű vegyes duopóliumok esetén [The Kreps and Scheinkman result remains valid for mixed duopolies with linear demand]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(5), pages 533-543.
    2. James A. Brander & Barbara J. Spencer, 2015. "Endogenous Horizontal Product Differentiation under Bertrand and Cournot Competition: Revisiting the Bertrand Paradox," NBER Working Papers 20966, National Bureau of Economic Research, Inc.
    3. Barna Bakó & Attila Tasnádi, 2017. "The Kreps-Scheinkman Game in Mixed Duopolies," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 173(4), pages 753-768, December.
    4. De Francesco, Massimo A. & Salvadori, Neri, 2008. "Bertrand-Edgeworth games under oligopoly with a complete characterization for the triopoly," MPRA Paper 10767, University Library of Munich, Germany, revised 26 Sep 2008.
    5. Simon Loertscher & Leslie Marx, 2014. "An Oligopoly Model for Analyzing and Evaluating (Re)-Assignments of Spectrum Licenses," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 45(3), pages 245-273, November.
    6. Massimo A. Francesco, 2014. "A Dynamic Entry And Price Game With Capacity Indivisibility," Bulletin of Economic Research, Wiley Blackwell, vol. 66(4), pages 406-419, October.
    7. De Francesco, Massimo A. & Salvadori, Neri, 2016. "Bertrand-Edgeworth games under triopoly: the equilibrium strategies when the payoffs of the two smallest firms are proportional to their capacities," MPRA Paper 69999, University Library of Munich, Germany.
    8. De Francesco, Massimo A. & Salvadori, Neri, 2015. "Bertrand-Edgeworth games under triopoly: the payoffs," MPRA Paper 64638, University Library of Munich, Germany.
    9. Loertscher, Simon & Marx, Leslie M., 2017. "Club good intermediaries," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 430-459.

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