Supply Function Equilibria of Pay-as-Bid Auctions
AbstractThis paper characterizes the Nash equilibrium in a pay-as-bid (discriminatory), divisible-good, procurement auction. Demand by the auctioneer is uncertain as in the supply function equilibrium model. A closed form expression is derived. Existence of an equilibrium is ensured if the hazard rate of the perfectly inelastic demand is monotonically decreasing and sellers have non-decreasing marginal costs. Multiple equilibria can be ruled out for markets, for which the auctioneer’s demand exceeds suppliers’ capacity with a positive probability. The derived equilibrium can be used to model strategic bidding behaviour in pay-as-bid electricity auctions, such as the balancing mechanism of United Kingdom. Offer curves and mark-ups of the derived equilibrium are compared to results for the SFE of a uniform-price auction.
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Bibliographic InfoPaper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 787.
Length: 30 pages
Date of creation: 29 Jan 2009
Date of revision:
Publication status: Published as Holmberg, Pär, 'Supply Function Equilibria of Pay-as-Bid Auctions' in Journal of Regulatory Economics, 2009, pages 154-177.
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More information through EDIRC
Supply Function Equilibrium; Pay-as-bid Auction; Discriminatory Auction; Divisible;
Other versions of this item:
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-06-10 (All new papers)
- NEP-ENE-2009-06-10 (Energy Economics)
- NEP-GTH-2009-06-10 (Game Theory)
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.:
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