Taking firms’ margin targets seriously in a model of competition in supply functions

Denis Claude () and Mabel Tidball ()
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Mabel Tidball: CEE-M - Centre d'Economie de l'Environnement - Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - UM - Université de Montpellier

CEE-M Working Papers from CEE-M, Universtiy of Montpellier, CNRS, INRA, Montpellier SupAgro

Abstract: We introduce price-markup objectives into a model of supply function competition. We characterize the corresponding supply-function equilibrium and study its qualitative properties. Adherence to price-markup targets is conducive to reduced market competition and increased firm profitability. While pursuing such goals reduces social welfare, welfare never drops below the level corresponding to a Cournot oligopoly. Finally, we establish conditions under which consumer preference for fair pricing inhibits the industry's use of markups as a collusive device.

Keywords: supply function; markup pricing; price fixing; oligopoly (search for similar items in EconPapers)
Date: 2022-01-31
New Economics Papers: this item is included in nep-com
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Related works:
Working Paper: Taking firms' margin targets seriously in a model of competition in supply functions (2024)
Working Paper: Taking firms’ margin targets seriously in a model of competition in supply functions (2022)
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