‘Everything must go!’- Cournot as a Stable Convention within Strategic Supply Function Competition

Posted by D. Daniel Sokol

Michal Krol (Manchester) explains ‘Everything must go!’- Cournot as a Stable Convention within Strategic Supply Function Competition.

ABSTRACT: This paper considers competition in supply functions in a homogeneous goods market. It demonstrates that when …rms are few, production costs rise steeply and are largely sunk, a restriction of the players’strategy sets equivalent to Cournot competi- tion constitutes an instance of the von Neumann-Morgenstern Stable Set. Speci…cally, any player who believes others will compete à la Cournot (but is ignorant of their exact quantity choices) …nds a strategy admissible if and only if it is within her restricted strategy set. In fact, under capacity constraints Cournot may constitute the unique set-valued solution satisfying these conditions. It also follows that Cournot then full…lls the ‘preparation’requirement of Voorneveld [2004] and has the three de…ning charac- teristics of the Self-Admissible Set by Brandenburger, Friedenberg, and Keisler [2008].