Market making oligopoly

Simon Loertscher ()

Diskussionsschriften from Universitaet Bern, Departement Volkswirtschaft

Abstract: This paper analyzes price competition between market makers who set costly capacity constraints before they intermediate between producers and consumers. The key finding is that the unique perfect equilibrium outcome is Cournot if capacity is costly and rationing efficient. This result is interesting for two main reasons: It generalizes Kreps and Scheinkman (1983) to an arbitrary number of market makers, and it contrasts with Stahl (1988) and the broader literature on market making, such as Gehrig (1993), Fingleton (1997) and Rust and Hall (2003), where due to the absence of capacity constraints on the input market the Bertrand paradox typically prevails.

Keywords: Market making; capacity constraints; price competition (search for similar items in EconPapers)
JEL-codes: C72 D41 D43 L13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-mic
Date: 2005-03
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Persistent link: http://EconPapers.repec.org/RePEc:ube:dpvwib:dp0512

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