This paper examines capacity-constrained oligopoly pricing with sellers who seek myopic improvements. We employ the Myopic Stable Set stability concept and establish the existence of a unique pure-strategy price solution for any given level of capacity. This solution is shown to coincide with the set of pure-strategy Nash equilibria when capacities are large or small. For an intermediate range of capacities, this stability concept predicts a price interval that includes the mixed-strategy support. The Myopic Stable Set thus encompasses all Nash equilibria and offers a pure-strategy solution when there is none in Nash terms. It furthermore provides a behavioral rationale for real-world economic phenomena such as Edgeworth-like price cycles, price dispersion and supply shortages.
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