Electricity markets benefit from supply function competition over quantity competition.
The study compares different ways companies compete in a market with uncertain demand for similar products. They found that when companies use supply functions to set prices, consumers benefit more. However, if products are very different, quantity competition might be better for companies. The level of product similarity and demand uncertainty affects which competition method is more profitable. This suggests that in markets with different products, regulators should consider these factors before deciding how companies should compete.