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Choosing roles under supply function competition

Flavio Delbono and Luca Lambertini ()

Energy Economics, 2018, vol. 71, issue C, 83-88

Abstract: Multiplicity of equilibria under supply function competition is a two-layer problem. To prove it, we investigate an extended game with observable delay under duopolistic competition in affine supply functions. Firms use the intercepts of supply functions as their strategic variables. Best replies are downward (upward) sloping if the common slope of supply functions is sufficiently low (high). Accordingly, simultaneous (sequential) play is selected at the subgame perfect equilibrium when best replies are negatively (positively) sloped. When best replies are increasing, the mixed strategy solution cannot be circumvented. This makes the design of procurement more challenging than we were used to think.

Keywords: Supply function; Strategic complements; Strategic substitutes; Endogenous timing; Energy markets (search for similar items in EconPapers)
JEL-codes: D43 L13 Q41 (search for similar items in EconPapers)
Date: 2018
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Working Paper: Choosing Roles under Supply Function Competition (2016) Downloads
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