Supply Function Equilibria Always Exist
AbstractSupply function equilibria are used in the analysis of divisible good auctions with a large number of identical objects to be sold or bought. An important example occurs in wholesale electricity markets. Despite the substantial literature on supply function equilibria the existence of a pure strategy Nash equilibria for a uniform price auction in asymmetric cases has not been established in a general setting. In this paper we prove the existence of a supply function equilibrium for a duopoly with asymmetric firms having convex costs, with decreasing concave demand subject to an additive demand shock, provided the second derivative of the demand function is small enough. The proof is constructive and also gives insight into the structure of the equilibrium solutions.
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Bibliographic InfoPaper provided by University of Sydney Business School, Discipline of Business Analytics in its series Working Papers with number 1 OMEWP.
Date of creation: Apr 2011
Date of revision:
existence of equilibria; supply functions; divisible good auctions; Wholesale electricity markets;
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- Holmberg, Pär & Newbery, David & Ralph, Daniel, 2009.
"Supply Function Equilibria: Step Functions and Continuous Representations,"
Working Paper Series
788, Research Institute of Industrial Economics.
- Holmberg, Pär & Newbery, David & Ralph, Daniel, 2013. "Supply function equilibria: Step functions and continuous representations," Journal of Economic Theory, Elsevier, vol. 148(4), pages 1509-1551.
- 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.
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