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Competition and Regulation Via Supply and Demand Functions in Oligopolistic-Oligopsonistic Markets

  • Bulut, Harun
  • Koray, Semih

In this study, we regard the oligopolistic-oligopsonistic markets within the framework of a “double auction†in which both buyers and sellers make bids. To this end, we introduce games where declarations of supply and demand functions (which need not be true) are treated as strategic variables of producers and consumers, respectively, rather than just as “binding commitments†on the part of these parties. Existence of symmetric equilibria of each of these games is established. Most of them are shown to be unique. The equilibrium outcomes of these are compared with the standard Cournot outcome as well as among themselves regarding the market price, total quantity produced, individual consumer’s surplus, individual firms’ profit and social welfare they lead to. To allow the consumers to behave strategically along with the producers, naturally makes the former better off and the latter worse off, while the net effect of this on total social welfare turns out to be case-contingent.

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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 12930.

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Date of creation: 26 Apr 2008
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Handle: RePEc:isu:genres:12930
Contact details of provider: Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
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  1. Loeb, Martin & Magat, Wesley A, 1979. "A Decentralized Method for Utility Regulation," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 399-404, October.
  2. Aldo Rustichini, 1992. "Convergence to Efficiency in a Simple Market with Incomplete Information," Discussion Papers 995, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Grant, Simon & Quiggin, John, 1994. "Nash equilibrium with mark-up-pricing oligopolists," Economics Letters, Elsevier, vol. 45(2), pages 245-251, June.
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  5. Richard Engelbrecht-Wiggans & Charles M. Kahn, 1998. "Multi-unit auctions with uniform prices," Economic Theory, Springer, vol. 12(2), pages 227-258.
  6. Grant, Simon & Quiggin, John, 1996. "Capital Precommitment and Competition in Supply Schedules," Journal of Industrial Economics, Wiley Blackwell, vol. 44(4), pages 427-41, December.
  7. Laussel, D., 1990. "Strategic Commercial Policy Revisited: A Supply Function Equilibrium Model," G.R.E.Q.A.M. 90a05, Universite Aix-Marseille III.
  8. Swinkels, Jeroen M, 2001. "Efficiency of Large Private Value Auctions," Econometrica, Econometric Society, vol. 69(1), pages 37-68, January.
  9. Green, Richard J & Newbery, David M, 1992. "Competition in the British Electricity Spot Market," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 929-53, October.
  10. Bolle, Friedel, 2001. "Competition with supply and demand functions," Energy Economics, Elsevier, vol. 23(3), pages 253-277, May.
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  12. Sexton, Richard J. & Lavoie, Nathalie, 2001. "Food processing and distribution: An industrial organization approach," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 15, pages 863-932 Elsevier.
  13. Wilson, Robert, 1979. "Auctions of Shares," The Quarterly Journal of Economics, MIT Press, vol. 93(4), pages 675-89, November.
  14. Wilson, Robert, 1977. "A Bidding Model of Perfect Competition," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 511-18, October.
  15. David Lucking-Reiley & John A. List, 2000. "Demand Reduction in Multiunit Auctions: Evidence from a Sportscard Field Experiment," American Economic Review, American Economic Association, vol. 90(4), pages 961-972, September.
  16. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-77, November.
  17. Kai-Uwe Kuhn, 1997. "Nonlinear Pricing in Vertically Related Duopolies," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 37-62, Spring.
  18. Bolle, Friedel, 1992. "Supply function equilibria and the danger of tacit collusion : The case of spot markets for electricity," Energy Economics, Elsevier, vol. 14(2), pages 94-102, April.
  19. Grossman, Sanford J, 1981. "Nash Equilibrium and the Industrial Organization of Markets with Large Fixed Costs," Econometrica, Econometric Society, vol. 49(5), pages 1149-72, September.
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