Asymmetric Supply Function Equilibrium with Constant Marginal Costs

Pär Holmberg

No 2005:16, Working Paper Series from Uppsala University, Department of Economics

Abstract: 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.

Keywords: supply function equilibrium; uniform-price auction; uniqueness; asymmetry; oligopoly; capacity constraint; wholesale electricity market (search for similar items in EconPapers)
JEL-codes: C62 D43 D44 L11 L13 L94 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2005-04-18
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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