Asymmetric Supply Function Equilibrium with Constant Marginal Costs
In a real-time electric power auction, the bids of producers consist of committed supply as a function of price. The bids are submitted under uncertainty, before the demand by the Independent System Operator has been realized. In the Supply Function Equilibrium (SFE), every producer chooses the supply function maximizing his expected profit given his residual demand. I consider a uniform-price auction with a reservation price, where demand is inelastic and exceed the market capacity with a positive probability, and firms have identical constant marginal costs but asymmetric capacities. I show that under these conditions, there is a unique SFE, which is piece-wise symmetric.
|Date of creation:||18 Apr 2005|
|Date of revision:|
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- 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.
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- 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.
- Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-77, November.
- Green, Richard J, 1996. "Increasing Competition in the British Electricity Spot Market," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 205-16, June.
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