Incentives in Supply Function Equilibrium

Research output: Working paperResearch


The author analyses delegation in homogenous duopoly under the assumption that the firm-managers compete in supply functions. In supply function equilibrium, managers’ decisions are strategic complements. This reverses earlier findings in that the author finds that owners give managers incentives to act in an accommodating way. As a result, optimal delegation reduces per-firm output and increases profits to above-Cournot profits. Moreover, in supply function equilibrium the mode of competition is endogenous. This means that the author avoids results that are sensitive with respect to assuming either Cournot or Bertrand competition.
Original languageEnglish
Place of PublicationKiel
Number of pages23
Publication statusPublished - 2014
Externally publishedYes

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