Supply function vs. quantity competition in supergames

Abstract

The paper makes two contributions to the theory of repeated oligopoly games. First, we build a supergame model where firms compete in supply functions. We show how collusion sustainability is affected by the presence of a convex cost function, the slope of market demand, and the number of rivals. Second, we compare the results with those of standard quantity competition under the same market structure. It is found that depending on the number of rivals and the slope of the market demand, collusion is easier to sustain under supply function rather than under quantity competition.