Economics Research Institute Study Paper
Utah State University Department of Economics
Copyright for this work is held by the author. Transmission or reproduction of materials protected by copyright beyond that allowed by fair use requires the written permission of the copyright owners. Works not in the public domain cannot be commercially exploited without permission of the copyright owner. Responsibility for any use rests exclusively with the user. For more information contact the Institutional Repository Librarian at email@example.com.
This paper analyzes oligopsonistic price competition under a fixed input supply constraint. Firms simultaneously and noncooperatively choose input prices. A "highest offer first" allocation rule determines each firm's share of the fixed supply. Under this rule, if a firm offers a particularly low price, then it may be shut out of the market. Moreover, low offer prices cannot be sustained in the market as a whole since firms have an incentive to outbid their rival(s) and increase individual market share. A pure strategy Nash equilibrium exists if the number of competing firms is sufficiently large. When this condition is satisfied, all equilibrium prices are near the firms' marginal valuation of input: The market outcome is approximately Walrasian.
Reinhorn, Leslie J. and Weninger, Quinn, "Oligopsony With Fixed Market Supply" (1999). Economic Research Institute Study Papers. Paper 152.