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The supply function equilibrium and its policy implications for wholesale electricity auctions

Author

Listed:
  • Pär Holmberg

    (Research Institute of Industrial Economics (IFN), Stockholm)

  • David Newbery

    (Faculty of Economics, University of Cambridge,)

Abstract

The supply function equilibrium provides a game-theoretic model of strategic bidding in oligopolistic wholesale electricity auctions. This paper presents an intuitive account of current understanding and shows how welfare losses depend on the number of firms in the market and their asymmetry. Previous results and general recommendations for divisible-good/multi-unit auctions provides guidance on the design of the auction format, setting the reservation price, the rationing rule, and restrictions on the offer curves in wholesale electricity auctions.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Pär Holmberg & David Newbery, 2010. "The supply function equilibrium and its policy implications for wholesale electricity auctions," Working Papers EPRG 1007, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    • Handle: RePEc:enp:wpaper:eprg1007
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    Keywords

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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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