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Supply Function Equilibrium in a Constrained Transmission System

Robert Wilson
Stanford Graduate School of Business

January 2007

Stanford University Graduate School of Business Research Paper No. 1966

Abstract:
This article characterizes a supply function equilibrium in an auction market constrained by limited capacities of links in a transportation network and limited input/output capacities of participants. The formulation is adapted to a wholesale spot market for electricity managed by the operator of the transmission system. The results are derived using the calculus of variations to obtain the Euler conditions and the transversality conditions that characterize a Nash equilibrium in an auction in which bids are as supply functions, and quantities and payments are based either on nodal prices or pay-as-bid.

Working Paper Series

Date posted: July 12, 2007 ; Last revised: July 12, 2007

Suggested Citation

Wilson, Robert B., Supply Function Equilibrium in a Constrained Transmission System (January 2007). Stanford University Graduate School of Business Research Paper No. 1966. Available at SSRN: http://ssrn.com/abstract=998614

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Robert B. Wilson (Contact Author)

Stanford Graduate School of Business ( email )

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