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How good are supply function equilibrium models: an empirical analysis of the ERCOT balancing market

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Author Info
Ramteen Sioshansi ()
Shmuel Oren ()
Abstract

We present an empirical analysis of a supply function equilibrium model in the Texas spot electricity market. We derive conditions for optimal bidding behavior in a spot market with ex ante bilaterally contracted sales. By estimating costs, we are able to derive a set of ex post-and ex ante-optimal supply functions and use a non-parametric behavioral model to compare our theoretically optimal supply functions to actual offers made. Our results show that with the exception of the largest generators, firms make offers with markups and markdowns far in excess of what a model of profit-maximizing behavior suggests. Copyright Springer Science+Business Media, LLC 2007

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File URL: http://hdl.handle.net/10.1007/s11149-006-9008-6
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Publisher Info
Article provided by Springer in its journal Journal of Regulatory Economics.

Volume (Year): 31 (2007)
Issue (Month): 1 (February)
Pages: 1-35
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Handle: RePEc:kap:regeco:v:31:y:2007:i:1:p:1-35

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Web page: http://www.springerlink.com/link.asp?id=100298

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Related research
Keywords: Electricity markets; Supply function equilibrium; ERCOT; Market power;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Catherine D. Wolfram, 1999. "Measuring Duopoly Power in the British Electricity Spot Market," American Economic Review, American Economic Association, vol. 89(4), pages 805-826, September. [Downloadable!] (restricted)
  2. Holmberg, Pär, 2005. "Numerical Calculation of an Asymmetric Supply Function Equilibrium with Capacity Constraints," Working Paper Series 2005:12, Uppsala University, Department of Economics. [Downloadable!]
  3. Ross Baldick & Ryan Grant & Edward Kahn, 2004. "Theory and Application of Linear Supply Function Equilibrium in Electricity Markets," Journal of Regulatory Economics, Springer, vol. 25(2), pages 143-167, 03. [Downloadable!]
  4. Holmberg, Pär, 2004. "Unique Supply Function Equilibrium with Capacity Constraints," Working Paper Series 2004:20, Uppsala University, Department of Economics. [Downloadable!]
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  5. Hurlbut, David & Rogas, Keith & Oren, Shmuel, 2004. "Protecting the Market from "Hockey Stick" Pricing: How the Public Utility Commission of Texas is Dealing with Potential Price Gouging," The Electricity Journal, Elsevier, vol. 17(3), pages 26-33, April. [Downloadable!] (restricted)
  6. Holmberg, Pär, 2005. "Asymmetric Supply Function Equilibrium with Constant Marginal Costs," Working Paper Series 2005:16, Uppsala University, Department of Economics. [Downloadable!]
  7. Wilson, Robert, 1979. "Auctions of Shares," The Quarterly Journal of Economics, MIT Press, vol. 93(4), pages 675-89, November. [Downloadable!] (restricted)
  8. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-77, November. [Downloadable!] (restricted)
  9. Green, Richard J, 1996. "Increasing Competition in the British Electricity Spot Market," Journal of Industrial Economics, Blackwell Publishing, vol. 44(2), pages 205-16, June. [Downloadable!] (restricted)
  10. Green, Richard J & Newbery, David M, 1992. "Competition in the British Electricity Spot Market," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 929-53, October. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Willems, Bert & Rumiantseva, I. & Weigt, H., 2007. "Cournot versus Supply Functions: What Does the Data tell us?," Discussion Paper 2007-023, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
    Other versions:
  2. Pär Holmberg, 2009. "Supply function equilibria of pay-as-bid auctions," Journal of Regulatory Economics, Springer, vol. 36(2), pages 154-177, October. [Downloadable!] (restricted)
  3. Holmberg, P. & Newbery, D & Ralph, D., 2008. "Supply Function Equilibria: Step Functions and Continuous Representations," Cambridge Working Papers in Economics 0863, Faculty of Economics, University of Cambridge. [Downloadable!]
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