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Supply function equilibria in transportation networks

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  • Pär Holmberg
  • Andy Philpott

Abstract

Transport constraints limit competition and arbitrageurs' possibilities of exploiting price differences between commodities in neighbouring markets. We analyze a transportation network where oligopoly producers compete with supply functions under uncertain demand, as in wholesale electricity markets. For symmetric networks with a radial structure, we show that existence of symmetric supply function equilibria (SFE) is ensured if demand shocks are sufficiently evenly distributed. We can explicitly solve for them for uniform multi-dimensional nodal demand shocks.

Suggested Citation

  • Pär Holmberg & Andy Philpott, 2014. "Supply function equilibria in transportation networks," Cambridge Working Papers in Economics 1421, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:1421
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    References listed on IDEAS

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    1. Edward J. Anderson & Pär Holmberg & Andrew B. Philpott, 2013. "Mixed strategies in discriminatory divisible-good auctions," RAND Journal of Economics, RAND Corporation, vol. 44(1), pages 1-32, March.
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    9. Holmberg, Pär & Lazarczyk, Ewa, 2012. "Congestion Management in Electricity Networks: Nodal, Zonal and Discriminatory Pricing," Working Paper Series 915, Research Institute of Industrial Economics.
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    More about this item

    Keywords

    Spatial competition; Multi-unit auction; Supply Function Equilibrium; Trading network; Transmission network; Wholesale electricity markets;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General

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