Coalition-proof Supply Function Equilibria in Oligopoly
by
Juan Delgado-Urdanibia
Comisión del Mercado de las Telecomunicaciones
Coauthors: Diego Moreno (Universidad Carlos III de Madrid)

In an industry where firms compete via supply functions the set of market outcomes that can arise is large: if demand is known with certainty and decreasing supply functions are ruled out, as in the spot electricity markets in Spain or in the UK, any price in the interval between the competitive equilibrium price and the Cournot price can be sustained by a supply function equilibrium. In sharp contrast, this multiplicity disappears when the firms in the industry take into account the gains they can attain by coordinating their actions: under some conditions on the demand and cost functions, if the number of firms is above a threshold (e.g., three if demand is linear), then the Cournot equilibrium is the unique outcome that can be sustained by a coalition-proof supply function equilibrium.

Date received: June 11, 2000

Copyright © 2000 by the author(s). The author(s) of this document and the organizers of the conference have granted their consent to include this abstract in Atlas Conferences Inc. Document # cafi-46.