Regulation via supply function equilibria

Abstract

In this study we attempt to analyze the delegation problem via supply function equilibria in the intermanagerial game. We obtain that in a duopoly where firms play a supply function game an infinite number of equilibrium outcomes exists. Due to this fact one should first make a selection among these equilibrium outcomes in order to apply to delegation games. An artificial selection of an a priori intended outcome leads us to designing mechanisms. We demonstrate several regulatory mechanisms. Moreover, we show that the socially ε-best outcome can be implemented via supply function equilibria as well.