Supply Function Equilibrium in a Constrained Transmission System

35 Pages Posted: 12 Jul 2007

See all articles by Robert Wilson

Robert Wilson

Stanford Graduate School of Business

Date Written: January 2007

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.

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: https://ssrn.com/abstract=998614 or http://dx.doi.org/10.2139/ssrn.998614

Robert B. Wilson (Contact Author)

Stanford Graduate School of Business ( email )

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