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Oligopoly Pricing with Capacity Constraints

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  • Timothy F. Bresnahan
  • Valérie Y. Suslow

Abstract

The shape of short run marginal cost (SRMC) is critical to understanding pricing behavior over the business cycle. We construct an econometric model of output and price determination for an industry with steep SRMC around capacity. In the North American aluminum industry, the capacity constraint plays an important role in pricing. When it binds, prices are high over a broad range of industry concentration. Market power raised prices at the cyclical trough much more when the industry was concentrated than it does now.

Suggested Citation

  • Timothy F. Bresnahan & Valérie Y. Suslow, 1989. "Oligopoly Pricing with Capacity Constraints," Annals of Economics and Statistics, GENES, issue 15-16, pages 267-289.
    • Handle: RePEc:adr:anecst:y:1989:i:15-16:p:267-289
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    File URL: http://www.jstor.org/stable/20075760
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    Cited by:

    1. Kjersti-Gro Lindquist, 1998. "The Response by the Norwegian Aluminium Industry to Changing Market Structure," Discussion Papers 237, Statistics Norway, Research Department.
    2. Jonathan B. Baker, 2003. "The Case for Antitrust Enforcement," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 27-50, Fall.
    3. Lindquist, Kjersti-Gro, 2001. "The response by the Norwegian aluminium industry to changing market structure," International Journal of Industrial Organization, Elsevier, vol. 19(1-2), pages 79-98, January.
    4. Fabra, Natalia, 2006. "Collusion with capacity constraints over the business cycle," International Journal of Industrial Organization, Elsevier, vol. 24(1), pages 69-81, January.
    5. Brendstrup, Bjarne & Paarsch, Harry J. & Solow, John L., 2006. "Estimating market power in the presence of capacity constraints: An application to high-fructose corn sweetener," International Journal of Industrial Organization, Elsevier, vol. 24(2), pages 251-267, March.
    6. Froeb, Luke & Tschantz, Steven & Crooke, Philip, 2003. "Bertrand competition with capacity constraints: mergers among parking lots," Journal of Econometrics, Elsevier, vol. 113(1), pages 49-67, March.
    7. Peter C. Carstensen, 2018. "Merger Guidelines and the Limits of Our Understanding," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 53(3), pages 477-506, November.

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