Supply Function Equilibria of Pay-as-Bid Auctions

Pär Holmberg

No 787, Working Paper Series from Research Institute of Industrial Economics

Abstract: This paper characterizes the Nash equilibrium in a pay-as-bid (discriminatory), divisible-good, procurement auction. Demand by the auctioneer is uncertain as in the supply function equilibrium model. A closed form expression is derived. Existence of an equilibrium is ensured if the hazard rate of the perfectly inelastic demand is monotonically decreasing and sellers have non-decreasing marginal costs. Multiple equilibria can be ruled out for markets, for which the auctioneer’s demand exceeds suppliers’ capacity with a positive probability. The derived equilibrium can be used to model strategic bidding behaviour in pay-as-bid electricity auctions, such as the balancing mechanism of United Kingdom. Offer curves and mark-ups of the derived equilibrium are compared to results for the SFE of a uniform-price auction.

Keywords: Supply Function Equilibrium; Pay-as-bid Auction; Discriminatory Auction; Divisible (search for similar items in EconPapers)
JEL-codes: C62 D43 D44 L11 L13 L94 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2009-01-29
New Economics Papers: this item is included in nep-ene and nep-gth
References: Add references at CitEc
Citations: View citations in EconPapers (23)

Published as Holmberg, Pär, 'Supply Function Equilibria of Pay-as-Bid Auctions' in Journal of Regulatory Economics, 2009, pages 154-177.

Downloads: (external link)
https://www.ifn.se/wfiles/wp/wp787.pdf (application/pdf)

Related works:
Journal Article: Supply function equilibria of pay-as-bid auctions (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:iuiwop:0787

Access Statistics for this paper

More papers in Working Paper Series from Research Institute of Industrial Economics Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Elisabeth Gustafsson ().