Uncertainty in Oligopoly Leads to Steeper Supply Functions and Fierce Competition
The article explores how companies in a competitive market can adapt to uncertain demand by using supply functions that link their quantity of goods to their prices. By analyzing different scenarios, the researchers found that under uncertainty, firms' supply functions become steeper when costs are higher, demand is more uncertain, and there are fewer competitors. This leads to competition resembling either the Cournot model (fixed quantities) or the Bertrand model (fixed prices). The study shows that firms can achieve a Nash equilibrium in supply functions in a symmetric oligopoly, with unique conditions for stability.