Supply function equilibria with capacity constraints and pivotal suppliers
The concept of a supply function equilibrium (SFE) has been widely used to model generators' bidding behavior and market power issues in wholesale electricity markets. Observers of electricity markets have noted how generation capacity constraints may contribute to market power of generation firms. If a generation firm's rivals are capacity constrained then the firm may be pivotal; that is, the firm could substantially raise the market price by unilaterally withholding output. However the SFE literature has not fully considered the impact of capacity constraints and pivotal firms on equilibrium predictions. We characterize the set of symmetric supply function equilibria for uniform-price auctions when firms are capacity constrained and show that this set is increasing as capacity per firm rises. We provide conditions under which asymmetric equilibria exist and characterize these equilibria. In addition, we compare results for uniform-price auctions to those for discriminatory auctions, and we compare our SFE predictions to equilibrium predictions of models in which bidders are constrained to bid on discrete units of output.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.:
- Giovanna Devetag & Andreas Ortmann, 2007.
"When and why? A critical survey on coordination failure in the laboratory,"
Springer, vol. 10(3), pages 331-344, September.
- Giovanna Devetag & Andreas Ortmann, 2006. "When and Why? A Critical Survey on Coordination Failure in the Laboratory," CERGE-EI Working Papers wp302, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
- Giovanna Devetag & Andreas Ortmann, 2006. "When and Why? A Critical Survey on Coordination Failure in the Laboratory," CEEL Working Papers 0605, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
- 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.
- Holmberg, Pär, 2004.
"Unique Supply Function Equilibrium with Capacity Constraints,"
Working Paper Series
2004:20, Uppsala University, Department of Economics.
- Holmberg, Par, 2008. "Unique supply function equilibrium with capacity constraints," Energy Economics, Elsevier, vol. 30(1), pages 148-172, January.
- Natalia Fabra & Nils‐Henrik Fehr & David Harbord, 2006.
"Designing electricity auctions,"
RAND Journal of Economics,
RAND Corporation, vol. 37(1), pages 23-46, 03.
- David M. Newbery, 1998.
"Competition, Contracts, and Entry in the Electricity Spot Market,"
RAND Journal of Economics,
The RAND Corporation, vol. 29(4), pages 726-749, Winter.
- Newbery, D. M., 1997. "Competition, Contracts and Entry in the Electricity Spot Market," Cambridge Working Papers in Economics 9707, Faculty of Economics, University of Cambridge.
- 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.
- Holmberg, Pär, 2005. "Numerical Calculation of an Asymmetric Supply Function Equilibrium with Capacity Constraints," Working Paper Series 2005:12, Uppsala University, Department of Economics.
- Severin Borenstein & James B. Bushnell & Frank A. Wolak, 2002. "Measuring Market Inefficiencies in California's Restructured Wholesale Electricity Market," American Economic Review, American Economic Association, vol. 92(5), pages 1376-1405, December.
- Juan Delgado, 2006.
"Coalition-proof supply function equilibria under capacity constraints,"
Springer, vol. 29(1), pages 219-229, September.
- Juan Delgado, 2005. "Coalition-Proof Supply Function Equilibria Under Capacity Constraints," Economics Working Papers we052314, Universidad Carlos III, Departamento de Economía.
- Joskow, P. & Edward Kahn, 2002.
"A Quantitative Analysis of Pricing Behavior In California’s Wholesale Electricity Market During Summer 2000,"
Cambridge Working Papers in Economics
0211, Faculty of Economics, University of Cambridge.
- Paul L. Joskow & Edward Kohn, 2002. "A Quantitative Analysis of Pricing Behavior in California's Wholesale Electricity Market During Summer 2000," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 1-35.
- Paul Joskow & Edward Kahn, 2001. "A Quantitative Analysis of Pricing Behavior in California's Wholesale Electricity Market During Summer 2000," NBER Working Papers 8157, National Bureau of Economic Research, Inc.
- Delgado, Juan & Moreno, Diego, 2004. "Coalition-proof supply function equilibria in oligopoly," Journal of Economic Theory, Elsevier, vol. 114(2), pages 231-254, February.
- 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.
- von der Fehr, Nils-Henrik Morch & Harbord, David, 1993.
"Spot Market Competition in the UK Electricity Industry,"
Royal Economic Society, vol. 103(418), pages 531-46, May.
- Von der Fehr, N.H.M. & Harbord, D., 1992. "Spot Market Competition in the UK Electricity Industry," Memorandum 09/1992, Oslo University, Department of Economics.
- Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-77, November.
- Ahmed Anwar, 2004. "The Case for a Discriminatory Pricing Rule in Competitive Electricity Pools," ESE Discussion Papers 39, Edinburgh School of Economics, University of Edinburgh.
- 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.
- 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.
- Green, Richard & Newbery, David M G, 1991. "Competition in the British Electricity Spot Market," CEPR Discussion Papers 557, C.E.P.R. Discussion Papers.
- Ilan Kremer & Kjell G. Nyborg, 2004. "Divisible-Good Auctions: The Role of Allocation Rules," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 147-159, Spring.
- Aleksandr Rudkevich & Max Duckworth & Richard Rosen, 1998. "Modeling Electricity Pricing in a Deregulated Generation Industry: The Potential for Oligopoly Pricing in a Poolco," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 19-48.
- Jaime F. Zender & James J.D. Wang, 2002. "Auctioning divisible goods," Economic Theory, Springer, vol. 19(4), pages 673-705.
When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:29:y:2011:i:4:p:432-442. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.