Explorations in supply and demand function equilibria

Abstract

In this study, we regard the oligopolistic-oligopsonistic markets within the framework of a “double auction” in which both buyers and sellers make bids. To this end, we introduce games where declarations of supply and demand functions (which need not be true) are treated as strategic variables of producers and consumers, respectively, rather than just as “binding commitments” on the part of these parties. Whether firms produce with positive or zero marginal cost, the number of agents on each side of the market, whether consumers act as a union or not and time structure of the moves lead to different games. Existence of symmetric equilibria of each of these games is established. Most of them are shown to be unique. The equilibrium outcomes of these games are compared with the naked Cournot outcome as well as among themselves regarding the market price, total quantity produced, individual consumer’s surplus, individual firm’s profit and social welfare they lead to. To allow the consumers to behave strategically along with the producers, naturally makes the former better off and the latter wor.se off, while the net effect of this on total social welfare turns out to be case-contingent.