Market Making Oligopoly

27 Pages Posted: 14 Jul 2008

See all articles by Simon Loertscher

Simon Loertscher

University of Melbourne - Department of Economics

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

Loertscher, Simon, Market Making Oligopoly. The Journal of Industrial Economics, Vol. 56, Issue 2, pp. 263-289, June 2008, Available at SSRN: https://ssrn.com/abstract=1158750 or http://dx.doi.org/10.1111/j.1467-6451.2008.00341.x

Simon Loertscher (Contact Author)

University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia

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