Oligopolistic Product Withholding in Ricardian Markets

Posted: 2 Nov 2004

See all articles by Robert T. Masson

Robert T. Masson

Cornell University

Ram Mudambi

Temple University - Department of Strategic Management

Robert J. Reynolds

The Brattle Group - Washington Offices

Abstract

We consider price setting strategic behavior in the market for quality-differentiated goods. In his classic analysis Ricardo showed that at the competition equilibrium the price of marginal unit is driven to zero. An oligopolistic market structure leads to a radically different equilibrium in almost all cases. Deliberate withholding of units often becomes part of a firm's Nash 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. We show that a mixed strategy equilibrium always exists. In spite of the price setting nature of the strategies, the associated payoff is always greater than the competitive payoff.

Keywords: Oligopoly games, mixed strategies, existence of equilibrium

JEL Classification: D43, L13, L15, C72

Suggested Citation

Masson, Robert T. and Mudambi, Ram and Reynolds, Robert J., Oligopolistic Product Withholding in Ricardian Markets. Available at SSRN: https://ssrn.com/abstract=612621

Robert T. Masson

Cornell University ( email )

Ithaca, NY 14853
United States

Ram Mudambi (Contact Author)

Temple University - Department of Strategic Management ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States
215-204-2099 (Phone)
215-204-8029 (Fax)

HOME PAGE: http://sbm.temple.edu/~rmudambi/index.html

Robert J. Reynolds

The Brattle Group - Washington Offices ( email )

1850 M Street NW
Suite 1200
Washington, DC 20036

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