Pivotal Suppliers and Market Power in Experimental Supply Function Competition

30 Pages Posted: 2 Sep 2014

See all articles by Stanley S. Reynolds

Stanley S. Reynolds

University of Arizona - Department of Economics

Arthur J. H. C. Schram

University of Amsterdam - Faculty of Economics and Business (FEB); Tinbergen Institute

Date Written: September 2014

Abstract

We use experiments to study market power with supply function competition, akin to the competition in electricity markets. Our treatments vary the distribution of demand levels as well as the amount and symmetry of the allocation of production capacity between different suppliers. We relate our results to a descriptive power index and to the predictions of two models: a supply function equilibrium (SFE) model and a multiā€unit auction (MUA) model. Observed behaviour is consistent with the equilibria of the unrestricted SFE model and inconsistent with the unique equilibria of two refinements of the SFE model and of the MUA model.

Suggested Citation

Reynolds, Stanley S. and Schram, Arthur J. H. C., Pivotal Suppliers and Market Power in Experimental Supply Function Competition (September 2014). The Economic Journal, Vol. 124, Issue 579, pp. 887-916, 2014, Available at SSRN: https://ssrn.com/abstract=2490183 or http://dx.doi.org/10.1111/ecoj.12058

Stanley S. Reynolds

University of Arizona - Department of Economics ( email )

McClelland Hall
Tucson, AZ 85721-0108
United States

Arthur J. H. C. Schram

University of Amsterdam - Faculty of Economics and Business (FEB) ( email )

Roetersstraat 18
CREED
Amsterdam 1018 WB
Netherlands
+31 (0)20 525 4293 (Phone)

HOME PAGE: http://www.fee.uva.nl/creed/PEOPLE/Arthurs.htm

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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