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

Pär Holmberg () and David M Newbery ()

Cambridge Working Papers in Economics from 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.

Keywords: Wholesale electricity markets; supply function equilibria; auction design; competition policy; market regulation (search for similar items in EconPapers)
JEL-codes: D43 D44 C62 L94 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene and nep-reg
Date: 2010-03-15
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Journal Article: The supply function equilibrium and its policy implications for wholesale electricity auctions (2010) Downloads
Working Paper: The supply function equilibrium and its policy implications for wholesale electricity auctions (2010) Downloads
Working Paper: The Supply Function Equilibrium and Its Policy Implications for Wholesale Electricity Auctions (2009) Downloads
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