Polynomial Approximations and Supply Function Equilibrium Stability (Aug-04)

44 Pages Posted: 11 Apr 2005

See all articles by Ross Baldick

Ross Baldick

University of Texas at Austin - Electrical and Computer Engineering

William W. Hogan

Harvard University - Harvard Kennedy School (HKS)

Date Written: March 2005

Abstract

Organized electricity markets often require submission of supply functions ahead of the realization of uncertain demand. As a model of oligopoly behavior, the Nash condition of supply function equilibrium has a natural appeal. Typically this produces a continuum of possible equilibria, presenting an equilibrium selection problem. Beyond existence, stability of an equilibrium would be an obvious criterion for selection. For affine demand and marginal costs, polynomial approximation provides an approach for analyzing the stability of unconstrained supply function equilibria. The set of stable approximation equilibria is small and its properties suggest that the set of stable exact supply function equilibria is empty.

Keywords: Economics - Economic and Econometric Theory, Regulation, Science, Technology and Public Policy

Suggested Citation

Baldick, Ross and Hogan, William W., Polynomial Approximations and Supply Function Equilibrium Stability (Aug-04) (March 2005). Available at SSRN: https://ssrn.com/abstract=702445 or http://dx.doi.org/10.2139/ssrn.702445

Ross Baldick

University of Texas at Austin - Electrical and Computer Engineering ( email )

2317 Speedway
Austin, TX Texas 78712
United States

William W. Hogan (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-495-1317 (Phone)
617-495-1635 (Fax)

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