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Supply Function Equilibrium with Asymmetric Capacities and Constant Marginal Costs

Pär Holmberg ()

The Energy Journal, 2007, vol. Volume 28, issue Number 2, 55-82

Abstract: This paper analytically derives a Supply Function Equilibrium (SFE) of a real-time electricity market with multiple firms and asymmetric production capacities. There is a unique SFE, which is piece-wise symmetric when firms have identical constant marginal costs. It is believed that some of the properties of the derived SFE are valid for real-time markets in general. FirmsÕ capacity constraints bind at different prices (i). Still, firms with non-binding capacity constraints have smooth residual demand (ii). Approximating an asymmetric real-time market with a symmetric one, tends to overestimate mark-ups for small positive imbalances and underestimate mark-ups for large positive imbalances (iii).

JEL-codes: F0 (search for similar items in EconPapers)
Date: 2007
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