IDEAS home Printed from https://ideas.repec.org/a/aen/journl/2007v28-02-a03.html

Supply Function Equilibrium with Asymmetric Capacities and Constant Marginal Costs

Author

Listed:
  • Par Holmberg

Abstract

This paper analytically derives a Supply Function Equilibrium (SFE) of a real-time electricity market with multiple firms and asymmetric production capacities. There is a unique SFE, which is piece-wise symmetric when firms have identical constant marginal costs. It is believed that some of the properties of the derived SFE are valid for real-time markets in general. FirmsÕ capacity constraints bind at different prices (i). Still, firms with non-binding capacity constraints have smooth residual demand (ii). Approximating an asymmetric real-time market with a symmetric one, tends to overestimate mark-ups for small positive imbalances and underestimate mark-ups for large positive imbalances (iii).

Suggested Citation

  • Par Holmberg, 2007. "Supply Function Equilibrium with Asymmetric Capacities and Constant Marginal Costs," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 55-82.
    • Handle: RePEc:aen:journl:2007v28-02-a03
    as

    Download full text from publisher

    File URL: http://www.iaee.org/en/publications/ejarticle.aspx?id=2212
    Download Restriction: Access to full text is restricted to IAEE members and subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or

    for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Holmberg, Pär, 2009. "Numerical calculation of an asymmetric supply function equilibrium with capacity constraints," European Journal of Operational Research, Elsevier, vol. 199(1), pages 285-295, November.
    2. Holmberg, Par, 2008. "Unique supply function equilibrium with capacity constraints," Energy Economics, Elsevier, vol. 30(1), pages 148-172, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Majid Al-Gwaiz & Xiuli Chao & Owen Q. Wu, 2017. "Understanding How Generation Flexibility and Renewable Energy Affect Power Market Competition," Manufacturing & Service Operations Management, INFORMS, vol. 19(1), pages 114-131, February.
    2. Holmberg, Pär & Newbery, David, 2010. "The supply function equilibrium and its policy implications for wholesale electricity auctions," Utilities Policy, Elsevier, vol. 18(4), pages 209-226, December.
    3. Albert Banal-Estañol & Augusto Rupérez Micola, 2010. "Are Agent-based Simulations Robust? The Wholesale Electricity Trading Case," Working Papers 443, Barcelona School of Economics.
    4. Pär Holmberg, 2011. "Strategic Forward Contracting in the Wholesale Electricity Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 169-202.
    5. Holmberg, Pär, 2009. "Numerical calculation of an asymmetric supply function equilibrium with capacity constraints," European Journal of Operational Research, Elsevier, vol. 199(1), pages 285-295, November.
    6. Ali Kakhbod & Asuman Ozdaglar & Ian Schneider, 2018. "Selling Wind," Papers 1812.11420, arXiv.org.
    7. Csereklyei, Zsuzsanna & Khezr, Peyman, 2024. "How do changes in settlement periods affect wholesale market prices? Evidence from Australia's National Electricity Market," Energy Economics, Elsevier, vol. 132(C).
    8. 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.
    9. Albert Banal-Estañol & Augusto Rupérez Micola, 2009. "Composition of Electricity Generation Portfolios, Pivotal Dynamics, and Market Prices," Management Science, INFORMS, vol. 55(11), pages 1813-1831, November.
    10. Bolle, Friedel & Grimm, Veronika & Ockenfels, Axel & del Pozo, Xavier, 2013. "An experiment on supply function competition," European Economic Review, Elsevier, vol. 63(C), pages 170-185.
    11. Knittel, Christopher R & Metaxoglou, Konstantinos, 2008. "Diagnosing Unilateral Market Power in Electricity Reserves Market," Institute of Transportation Studies, Working Paper Series qt14q6c0mk, Institute of Transportation Studies, UC Davis.
    12. Genc, Talat S. & Reynolds, Stanley S., 2011. "Supply function equilibria with capacity constraints and pivotal suppliers," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 432-442, July.
    13. Albert Banal-Estañol & Augusto Rupérez-Micola, 2010. "Are agent-based simulations robust? The wholesale electricity trading case," Economics Working Papers 1214, Department of Economics and Business, Universitat Pompeu Fabra.
    14. Aitor Ciarreta & Maria Paz Espinosa, 2010. "Supply Function Competition in the Spanish Wholesale Electricity Market," The Energy Journal, , vol. 31(4), pages 137-158, October.
    15. David Newbery, 2008. "Analytic Solutions for Supply Function Equilibria: Uniqueness and Stability," Working Papers EPRG 0824, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    16. Hunt Allcott, 2012. "The Smart Grid, Entry, and Imperfect Competition in Electricity Markets," NBER Working Papers 18071, National Bureau of Economic Research, Inc.
    17. Edward J. Anderson & Xinmin Hu, 2012. "Asymmetric Supply Function Equilibria with Forward Contracts," Journal of Optimization Theory and Applications, Springer, vol. 152(1), pages 198-224, January.
    18. 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.
    19. David P. Brown & David E. M. Sappington, 2023. "Load-Following Forward Contracts," The Energy Journal, , vol. 44(3), pages 187-222, May.
    20. Agostino Capponi & Garud Iyengar & Bo Yang & Daniel Bienstock, 2025. "Virtual Trading in Multi-Settlement Electricity Markets," Papers 2508.11979, arXiv.org.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Hunt Allcott, 2012. "The Smart Grid, Entry, and Imperfect Competition in Electricity Markets," NBER Working Papers 18071, National Bureau of Economic Research, Inc.
    3. Holmberg, Pär, 2005. "Comparing Supply Function Equilibria of Pay-as-Bid and Uniform-Price Auctions," Working Paper Series 2005:17, Uppsala University, Department of Economics.
    4. Fredrik Johansson-Tormod & Anders Klevmarken, 2022. "Explaining the Size and Nature of Response in a Survey on Health Status and Economic Standard," International Journal of Microsimulation, International Microsimulation Association, vol. 15(1), pages 63-77.
    5. Ollikka, Kimmo & Tukiainen, Janne, 2013. "Central bank liquidity auction mechanism design and the interbank market," Bank of Finland Research Discussion Papers 21/2013, Bank of Finland.
    6. Holmberg, Pär & Newbery, David, 2010. "The supply function equilibrium and its policy implications for wholesale electricity auctions," Utilities Policy, Elsevier, vol. 18(4), pages 209-226, December.
    7. Newbery, D, 2008. "Analytic Solutions for Supply Function Equilibria: Uniqueness and Stability," Cambridge Working Papers in Economics 0848, Faculty of Economics, University of Cambridge.
    8. Chen, Jie, 2006. "The Dynamics of Housing Allowance Claims in Sweden: A discrete-time hazard analysis," Working Paper Series 2006:1, Uppsala University, Department of Economics.
    9. Ollikka, Kimmo & Tukiainen, Janne, 2013. "Central bank liquidity auction mechanism design and the interbank market," Research Discussion Papers 21/2013, Bank of Finland.
    10. Genc, Talat S. & Reynolds, Stanley S., 2011. "Supply function equilibria with capacity constraints and pivotal suppliers," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 432-442, July.
    11. Agostino Capponi & Garud Iyengar & Bo Yang & Daniel Bienstock, 2025. "Virtual Trading in Multi-Settlement Electricity Markets," Papers 2508.11979, arXiv.org.
    12. Edward J. Anderson & Xinmin Hu, 2008. "Finding Supply Function Equilibria with Asymmetric Firms," Operations Research, INFORMS, vol. 56(3), pages 697-711, June.
    13. Ollikka, Kimmo, 2014. "Essays on auction mechanisms and information in regulating pollution," Research Reports 66, VATT Institute for Economic Research.
    14. Berg, Lennart & Berger, Tommy, 2005. "The Q theory and the Swedish housing market –an empirical test," Working Paper Series 2005:19, Uppsala University, Department of Economics.
    15. repec:zbw:bofrdp:2013_021 is not listed on IDEAS
    16. Ramteen Sioshansi & Shmuel Oren, 2007. "How good are supply function equilibrium models: an empirical analysis of the ERCOT balancing market," Journal of Regulatory Economics, Springer, vol. 31(1), pages 1-35, February.
    17. Ollikka, Kimmo, 2014. "Essays on auction mechanisms and information in regulating pollution," Research Reports P66, VATT Institute for Economic Research.
    18. Pär Holmberg, 2017. "Pro‐competitive Rationing in Multi‐unit Auctions," Economic Journal, Royal Economic Society, vol. 127(605), pages 372-395, October.
    19. Matthias Janssen & Magnus Wobben, "undated". "Electricity Pricing and Market Power - Evidence from Germany," Working Papers 200121, Institute of Spatial and Housing Economics, Munster Universitary.
    20. Pär Holmberg & Andy Philpott, 2014. "Supply function equilibria in transportation networks," Cambridge Working Papers in Economics 1421, Faculty of Economics, University of Cambridge.
    21. Willems, Bert & Rumiantseva, Ina & Weigt, Hannes, 2009. "Cournot versus Supply Functions: What does the data tell us?," Energy Economics, Elsevier, vol. 31(1), pages 38-47, January.

    More about this item

    JEL classification:

    • F0 - International Economics - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aen:journl:2007v28-02-a03. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: David Williams (email available below). General contact details of provider: https://edirc.repec.org/data/iaeeeea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.