The desirability of the supply function competition under demand uncertainty

In this paper, we consider an oligopolistic industry with demand uncertainty and study the welfare comparison between the supply function competition and the stochastic Cournot competition. We prove that the expected consumer surplus is always higher under the supply function competition. By numerical computations we also show that the expected profits of the oligopolistic firms can be higher under the supply function competition only if the demand uncertainty is above a critical threshold. This threshold is increasing in the number of firms, while decreasing in the slope of the demand curve and the marginal cost of producing a unit output.