Competition with supply and demand functions

If economic agents have to determine in advance their supply or demand in r eaction to different market prices we may assume that their strategic instr uments are supply or demand functions. The best examples for such markets a re the spot markets for electricity in England and Wales, in Chile, in New Zealand, in Scandinavia and perhaps elsewhere. A further example is compute rized trading in stock markets, financial markets, or commodity exchanges. The functional form of equilibria is explicitly determined in this paper. U nder a certain condition, equilibria exist for every finite spread of (stoc hastic) autonomous demand, i.e. demand from small, non-strategically acting consumers. Contrary to competition with supply functions alone, however, t here is no tendency for market prices to converge to 0 if the spread of aut onomous demand increases infinitely. Lower bounds of market prices can be c omputed instead. (C) 2001 Elsevier Science B.V. All rights reserved.