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Supply function equilibria and nonprofit-maximizing objectives

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  • Yasui, Yuta
  • Haraguchi, Junichi

Abstract

We examine the supply function equilibrium (SFE) that is often used in the analysis of multi-unit auctions, such as wholesale electricity markets, among (partially privatized) public firms. We show that in a duopoly model with linear demand and quadratic cost functions, both a partially privatized public firm and a profit-maximizing firm offers flatter supply functions as equilibrium strategies, resulting in a larger social surplus, when the public firm focuses more on social welfare. This implies that the full nationalization is optimal if firms compete in SFE, in contrast to a Cournot case, which has been used as an approximation of the wholesale electricity markets. We also confirm that the SFE converges to the (inverse) marginal cost function when the firms’ social concern is improved symmetrically in the industry.

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  • Yasui, Yuta & Haraguchi, Junichi, 2018. "Supply function equilibria and nonprofit-maximizing objectives," Economics Letters, Elsevier, vol. 166(C), pages 50-55.
    • Handle: RePEc:eee:ecolet:v:166:y:2018:i:c:p:50-55
    DOI: 10.1016/j.econlet.2018.02.008
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    Cited by:

    1. Yasui, Yuta & Haraguchi, Junichi, 2018. "Supply function equilibria and nonprofit-maximizing objectives," Economics Letters, Elsevier, vol. 166(C), pages 50-55.
    2. 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.
    3. Gutiérrez-Hita, Carlos & Vicente-Pérez, José, 2018. "On supply function equilibria in a mixed duopoly," Economics Letters, Elsevier, vol. 168(C), pages 6-9.

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    More about this item

    Keywords

    Supply function equilibrium; Electricity markets; Partial privatization; Corporate social responsibility; Mixed oligopoly;
    All these keywords.

    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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