Discussion Paper

No. 2014-38 | September 29, 2014
Incentives in Supply Function Equilibrium

Abstract

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.

JEL Classification:

D22, D43, L22

Assessment

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Links

Cite As

Henrik Vetter (2014). Incentives in Supply Function Equilibrium. Economics Discussion Papers, No 2014-38, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2014-38


Comments and Questions


Anonymous - Referee Report 1
November 24, 2014 - 08:51

see attached file


Henrik Vetter - Response
December 01, 2014 - 09:07

Please see attachment.


Anonymous - Referee Report 2
November 28, 2014 - 08:58

see attached file


Anonymous - Response
December 01, 2014 - 09:07

Please see attachment.