Archive for category Game theory

Competing via supply functions under capacity constraints

Coalition-proof Supply Function Equilibria under Capacity Constraints, by Juan Delgado

Economic Theory, (2006); vol. 29(1), pp. 219-229.

Whereas in the absence of capacity constraints the Cournot outcome is the unique coalition-proof supply function equilibrium outcome, the presence of capacity constraints may enlarge the set of equilibrium outcomes. Interestingly, if capacities are sufficiently asymmetric the new equilibrium prices are below the Cournot price. These results have important implications for merger and privatization policies: specifically, capacity divestiture will not necessarily imply lower market prices.

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Competing via supply functions

Coalition-proof Supply Function Equilibria in Oligopoly, by Juan Delgado and Diego Moreno.

Journal of Economic Theory, (2004); vol. 114(2), pp. 231-254.

In an industry where firms compete via supply functions, the set of equilibrium outcomes is large. If decreasing supply functions are ruled out, this set is reduced significantly, but remains large. Specifically, the set of prices that can be sustained by supply function equilibria is the interval between the competitive price and the Cournot price. In sharp contrast, when the number of firms is above a threshold we identify (e.g., three if demand is linear), only the Cournot outcome can be sustained by a coalition-proof supply function equilibrium.

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