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The Supply Function Equilibrium and its Policy Implications for Wholesale Electricity Auctions

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  • Holmberg, P.
  • Newbery, D.

Abstract

The supply function equilibrium provides a game-theoretic model of strategic bidding in oligopolistic wholesale electricity auctions. This paper presents an intuitive account of current understanding and shows how welfare losses depend on the number of firms in the market and their asymmetry. Previous results and general recommendations for divisible-good/multi-unit auctions provides guidance on the design of the auction format, setting the reservation price, the rationing rule, and restrictions on the offer curves in wholesale electricity auctions.

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Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 1016.

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Date of creation: 15 Mar 2010
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Handle: RePEc:cam:camdae:1016

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Web page: http://www.econ.cam.ac.uk/index.htm

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Keywords: Wholesale electricity markets; supply function equilibria; auction design; competition policy; market regulation;

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Citations

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Cited by:
  1. Holmberg, Pär & Lazarczyk, Ewa, 2012. "Congestion Management in Electricity Networks: Nodal, Zonal and Discriminatory Pricing," Working Paper Series 915, Research Institute of Industrial Economics.
  2. Ayzenberg, N. & Kiseleva, N. & Zorkaltsev, V., 2013. "Models of Imperfect Competition in Analysis of Siberian Electricity Market," Journal of the New Economic Association, New Economic Association, vol. 18(2), pages 62-88.
  3. Moutinho, Victor & Moreira, António C. & Mota, Jorge, 2014. "Do regulatory mechanisms promote competition and mitigate market power? Evidence from Spanish electricity market," Energy Policy, Elsevier, vol. 68(C), pages 403-412.
  4. Holmberg, P. & Willems, B., 2012. "Relaxing competition through speculation: Committing to a negative supply slope," Cambridge Working Papers in Economics 1252, Faculty of Economics, University of Cambridge.
  5. Kimbrough, Steven O. & Murphy, Frederic H., 2013. "Strategic bidding of offer curves: An agent-based approach to exploring supply curve equilibria," European Journal of Operational Research, Elsevier, vol. 229(1), pages 165-178.
  6. Holmberg, Pär & Philpott, Andrew, 2012. "Supply Function Equilibria in Networks with Transport Constraints," Working Paper Series 945, Research Institute of Industrial Economics.

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