Working Paper: CEPR ID: DP4315
Authors: Gary Biglaiser; Nikolaos Vettas
Abstract: We analyse a set of simple dynamic models where sellers are capacity constrained over the length of the model. Buyers act strategically in the market, knowing that their purchases may affect future prices. The model is examined when there are single and multiple buyers, with both linear and non-linear pricing. We find that, in general, there are only mixed strategy equilibria and that sellers get a rent above the amount needed to satisfy the market demand that the other seller cannot meet. Buyers would like to commit not to buy in the future. Furthermore, sellers? market shares tend to be maximally asymmetric with high probability, even though they are ex ante identical.
Keywords: bilateral oligopoly; capacity constraints; linear pricing; nonlinear pricing
JEL Codes: D43; L13; L14; L22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| buyer decision to split orders (D16) | seller pricing in subsequent periods (L11) |
| strategic behavior of buyers (D43) | sellers receive economic rents above the amount needed to satisfy market demand (D40) |
| buyer preference to split orders (C69) | influence on sellers' pricing strategies (L11) |
| buyers' incentives to split orders (L14) | sellers price less aggressively in subsequent periods (D40) |
| buyers' strict incentive to commit not to purchase in future (L14) | induce stronger price competition in the first period (D43) |