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The Supply Function Equilibrium and Its Policy Implications for Wholesale Electricity Auctions

  • Holmberg, Pär

    ()

    (Research Institute of Industrial Economics (IFN))

  • Newbery, David

    (Faculty of Economics)

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.

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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 812.

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Length: 45 pages
Date of creation: 05 Nov 2009
Date of revision:
Publication status: Published as Holmberg, Pär and David Newbery, 'The Supply Function Equilibrium and Its Policy Implications for Wholesale Electricity Auctions' in Utilities Policy, 2010, pages 209-226.
Handle: RePEc:hhs:iuiwop:0812
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