Coalition-Proof Supply Function Equilibria Under Capacity Constraints
Posted: 25 Nov 2014 Last revised: 14 Apr 2015
Date Written: January 24, 2006
Abstract
Whereas in the absence of capacity constraints the Cournot outcome is the unique coalition-proof supply function equilibrium outcome, the presence of capacity constraints may enlarge the set of equilibrium outcomes. Interestingly, if capacities are sufficiently asymmetric the new equilibrium prices are below the Cournot price. These results have important implications for merger and privatization policies: specifically, capacity divestiture will not necessarily imply lower market prices.
Keywords: Oligopoly; Cournot; Competition via supply functions; Coalition-proofness; Capacity constraints
JEL Classification: C72; D43; L13; L51
Suggested Citation: Suggested Citation