Unique supply function equilibrium with capacity constraints
AbstractConsider a market where producers submit supply functions to a procurement auction â e.g. an electric power auction â under uncertainty, before demand has been realized. In the Supply Function Equilibrium (SFE), every firm commits to the supply function maximizing his expected profit given the supply functions of the competitors. The presence of multiple equilibria is one basic weakness of SFE. This paper shows that with (i) symmetric producers, (ii) inelastic demand, (iii) a reservation price, and (iiii) capacity constraints that bind with a positive probability, there is a unique symmetric SFE.
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Bibliographic InfoArticle provided by Elsevier in its journal Energy Economics.
Volume (Year): 30 (2008)
Issue (Month): 1 (January)
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Web page: http://www.elsevier.com/locate/eneco
Other versions of this item:
- Holmberg, Pär, 2004. "Unique Supply Function Equilibrium with Capacity Constraints," Working Paper Series 2004:20, Uppsala University, Department of Economics.
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
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