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Coalition-proof supply function equilibria under capacity constraints

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  • Juan Delgado

Abstract

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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Suggested Citation

  • Juan Delgado, 2006. "Coalition-proof supply function equilibria under capacity constraints," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 29(1), pages 219-229, September.
    • Handle: RePEc:spr:joecth:v:29:y:2006:i:1:p:219-229
    DOI: 10.1007/s00199-005-0004-3
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    Cited by:

    1. Willems, Bert & Rumiantseva, Ina & Weigt, Hannes, 2009. "Cournot versus Supply Functions: What does the data tell us?," Energy Economics, Elsevier, vol. 31(1), pages 38-47, January.
    2. Ismail Saglam, 2018. "The desirability of the supply function competition under demand uncertainty," Economics Bulletin, AccessEcon, vol. 38(1), pages 541-549.
    3. Saglam, Ismail, 2017. "A Note on the Desirability of the Supply Function Competition with Demand Uncertainty," MPRA Paper 82995, University Library of Munich, Germany.
    4. Genc, Talat S. & Reynolds, Stanley S., 2011. "Supply function equilibria with capacity constraints and pivotal suppliers," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 432-442, July.
    5. Michal Król, 2012. "‘Everything must go!’- Cournot as a Stable Convention within Strategic Supply Function Competition," Economics Discussion Paper Series 1217, Economics, The University of Manchester.
    6. Michał Król, 2017. "On the equivalence of quantity competition and supply function competition with sunk costs," International Journal of Game Theory, Springer;Game Theory Society, vol. 46(2), pages 475-486, May.

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    More about this item

    Keywords

    Oligopoly; Cournot; Competition via supply functions; Coalition-proofness; Capacity constraints; C72; D43; L13; L51;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • 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
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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