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Supply Function Equilibrium with Taxed Benefits

Author

Listed:
  • K. Ruddell

    (Electric Power Optimization Centre, University of Auckland, Auckland 1010, New Zealand)

  • A. B. Philpott

    (Electric Power Optimization Centre, University of Auckland, Auckland 1010, New Zealand)

  • A. Downward

    (Electric Power Optimization Centre, University of Auckland, Auckland 1010, New Zealand)

Abstract

Supply function equilibrium models are used to study electricity market auctions with uncertain demand. We study the effects on the supply function equilibrium of a tax, levied by the system operator, on the observed surplus of producers. Such a tax provides an incentive for producers to alter their offers to avoid the tax. We consider these incentives under both strategic and price-taking assumptions. The model is extended to a setting in which producers are taxed on the benefits accruing to them from a transmission line expansion (a beneficiaries-pay transmission charge). In this setting, we show how this tax may lead to lower prices in equilibrium.

Suggested Citation

  • K. Ruddell & A. B. Philpott & A. Downward, 2017. "Supply Function Equilibrium with Taxed Benefits," Operations Research, INFORMS, vol. 65(1), pages 1-18, February.
    • Handle: RePEc:inm:oropre:v:65:y:2018:i:1:p:1-18
    DOI: 10.287/opre.2016.1555
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    References listed on IDEAS

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    Cited by:

    1. Li, Yue & Jiao, Bing & Li, Lin & Zhao, Ruiqing, 2024. "Does bank-tax-interaction benefit small and medium manufacturer? An intertemporal signaling game," International Journal of Production Economics, Elsevier, vol. 271(C).
    2. Holmberg, Pär & Tangerås, Thomas, 2021. "Strategic Reserves versus Market-wide Capacity Mechanisms," Working Paper Series 1387, Research Institute of Industrial Economics.
    3. Amar Sapra & Peter L. Jackson, 2022. "Integration of long‐ and short‐term contracts in a market for capacity," Production and Operations Management, Production and Operations Management Society, vol. 31(7), pages 2872-2890, July.
    4. Michele Fioretti & Junnan He & Jorge Tamayo, 2024. "Prices and Concentration: A U-shape? Theory and Evidence from Renewables," Papers 2407.03504, arXiv.org.

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