Unique supply function equilibrium with capacity constraints
2008 (English)In: Energy Economics, ISSN 0140-9883, E-ISSN 1873-6181, Vol. 30, no 1, 148-172 p.Article in journal (Refereed) Published
Consider a market where producers submit supply functions to a procurement auction with uncertain demand, e.g. an electricity auction. In the Supply Function Equilibrium (SFE), every firm commits to the supply function that maximises expected profit in the one-shot game given the supply functions of competitors. A basic weakness of the SFE is the presence of multiple equilibria. This paper shows that with (i) symmetric producers, (ii) perfectly inelastic demand, (iii) a price cap, and (iv) capacity constraints that bind with a positive probability, there exists a unique, symmetric SFE.
Place, publisher, year, edition, pages
2008. Vol. 30, no 1, 148-172 p.
Capacity constraint, Oligopoly, Supply function equilibrium, Uniform-price auction, Uniqueness, Wholesale electricity market
Economics and Business
IdentifiersURN: urn:nbn:se:uu:diva-93275DOI: 10.1016/j.eneco.2006.10.005ISI: 000251387700008OAI: oai:DiVA.org:uu-93275DiVA: diva2:166709