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Choosing roles under supply function competition

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  • Delbono, Flavio
  • Lambertini, Luca

Abstract

Multiplicity of equilibria under supply function competition is a two-layer problem. To prove it, we investigate an extended game with observable delay under duopolistic competition in affine supply functions. Firms use the intercepts of supply functions as their strategic variables. Best replies are downward (upward) sloping if the common slope of supply functions is sufficiently low (high). Accordingly, simultaneous (sequential) play is selected at the subgame perfect equilibrium when best replies are negatively (positively) sloped. When best replies are increasing, the mixed strategy solution cannot be circumvented. This makes the design of procurement more challenging than we were used to think.

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  • Delbono, Flavio & Lambertini, Luca, 2018. "Choosing roles under supply function competition," Energy Economics, Elsevier, vol. 71(C), pages 83-88.
    • Handle: RePEc:eee:eneeco:v:71:y:2018:i:c:p:83-88
    DOI: 10.1016/j.eneco.2018.02.005
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    Cited by:

    1. Marc Escrihuela‐Villar & Carlos Gutiérrez‐Hita & José Vicente‐Pérez, 2020. "Supply function competition in a mixed electric power market," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(4), pages 1151-1175, August.
    2. Flavio M. Menezes & John Quiggin, 2020. "The Strategic Industry Supply Curve," Journal of Industrial Economics, Wiley Blackwell, vol. 68(3), pages 523-555, September.
    3. Menezes, Flavio M. & Quiggin, John, 2022. "Market power amplifies the price effects of demand shocks," Economics Letters, Elsevier, vol. 221(C).

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    More about this item

    Keywords

    Supply function; Strategic complements; Strategic substitutes; Endogenous timing; Energy markets;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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