Discriminatory Versus Uniform-Price Electricity Auctions with Supply Function Equilibrium

28 Pages Posted: 19 Mar 2008

See all articles by Talat Genc

Talat Genc

University of Guelph - Department of Economics

Date Written: December, 2007

Abstract

A goal of this paper is to compare results for discriminatory auctions to results for uniform-price auctions when suppliers have capacity constraints. We have a pretty good understanding of what equilibrium results look like for the uniform-price auctions. But an unresolved problem is what happens when a discriminative auction is run and suppliers have capacity constraints. We formulate a supply function equilibrium (SFE) model in continuous offer schedules with inelastic, time varying demand and with single step marginal cost function to compare two auction institutions in the presence of capacity constraints. We show that payments made to the suppliers in the unique equilibrium of the discriminatory auction can be less than the payments in the uniform-price auction, depending on which uniform-price auction equilibrium is selected. For the high demand and/or low excess capacity cases we also characterize mixed strategy supply function equilibrium under the discriminatory auction.

Keywords: Supply function equilibrium, continuous offer schedules, electricity markets, uniform-price auction, discriminatory auction

Suggested Citation

Genc, Talat, Discriminatory Versus Uniform-Price Electricity Auctions with Supply Function Equilibrium (December, 2007). Available at SSRN: https://ssrn.com/abstract=1108454 or http://dx.doi.org/10.2139/ssrn.1108454

Talat Genc (Contact Author)

University of Guelph - Department of Economics ( email )

50 Stone Road East
Guelph, Ontario N1G 2W1
Canada

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