Document Type

Article

Journal/Book Title/Conference

Economics Research Institute Study Paper

Volume

2

Publisher

Utah State University Department of Economics

Publication Date

1999

First Page

1

Last Page

33

Abstract

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.


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