Oligopolistic Product Withholding in Ricardian Markets

Robert T Masson, Ram Mudambi and Robert J Reynolds

Bulletin of Economic Research, 1994, vol. 46, issue 1, 71-79

Abstract: We consider strategic behaviour in the rental market for quality-differentiated goods. In his classic analysis Ricardo showed that at the competitive equilibrium the price of the marginal unit is driven to zero. An oligopolistic market structure usually leads to a radically different equilibrium. Deliberate withholding of units often becomes part of a firm's best response, and whenever this occurs, a pure strategy equilibrium fails to exist. A necessary but not sufficient condition for a pure strategy equilibrium to exist is for one firm to own all the best quality units. A mixed strategy equilibrium always exists and the associated payoff is always greater than the competitive payoff. Copyright 1994 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

Date: 1994
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