Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/81370
Authors: 
Holmberg, Pär
Philpott, Andrew
Year of Publication: 
2012
Series/Report no.: 
IFN Working Paper 945
Abstract: 
Transport constraints limit competition and arbitrageurs' possibilities of exploiting price differences between goods in neighbouring markets, especially when storage capacity is negligible. We analyse this in markets where strategic producers compete with supply functions, as in wholesale electricity markets. For networks with a radial structure, we show that existence of supply function equilibria (SFE) is ensured if demand shocks are suffciently evenly distributed, and solve for SFE in symmetric radial networks with uniform multi-dimensional nodal demand shocks. An equilibrium offer in such networks is identical to an SFE offer in an isolated node where the symmetric number of firms has been scaled by a market integration factor, the expected number of nodes that are completely integrated with a node in the symmetric network. The analysis can be extended to mesh networks (as in electricity systems) although the resulting models do not simplify as in the radial case.
Subjects: 
Transmission network
Graph theory
Market integration
Wholesale electricity markets
JEL: 
C72
D43
D44
L91
Document Type: 
Working Paper

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