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Ranking Bertrand, Cournot and Supply Function Equilibria in Oligopoly

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  • F. Delbono
  • L. Lambertini

Abstract

We show that the standard argument according to which supply function equilibria rank intermediate between Bertrand and Cournot equilibria may be reversed. We prove this result within a static oligopolistic game in which both supply function competition and Cournot competition yield a unique Nash equilibrium, whereas price setting yields a continuum of Nash equilibria. There are parameter regions in which Bertrand profits are higher than Cournot ones, with the latter being higher than in the supply function equilibrium. Such reversal of the typical ranking occurs when price-setting mimics collusion. We then show that the reversal in profits is responsible for a reversal in the welfare performance of the industry.

Suggested Citation

  • F. Delbono & L. Lambertini, 2015. "Ranking Bertrand, Cournot and Supply Function Equilibria in Oligopoly," Working Papers wp1000, Dipartimento Scienze Economiche, Universita' di Bologna.
  • Handle: RePEc:bol:bodewp:wp1000
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    Cited by:

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    6. 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.
    7. Keita Yamane, 2018. "Mixed duopoly and the indirect effect in linear supply function competition," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 45(4), pages 519-532, December.
    8. Ismail Saglam, 2018. "Ranking Supply Function and Cournot Equilibria in a Differentiated Product Duopoly with Demand Uncertainty," Games, MDPI, Open Access Journal, vol. 9(3), pages 1-13, August.
    9. Motalleb, Mahdi & Siano, Pierluigi & Ghorbani, Reza, 2019. "Networked Stackelberg Competition in a Demand Response Market," Applied Energy, Elsevier, vol. 239(C), pages 680-691.

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    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

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