Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/81373
Authors: 
Holmberg, Pär
Year of Publication: 
2009
Series/Report no.: 
IFN Working Paper 787
Abstract: 
This paper characterizes the Nash equilibrium in a pay-as-bid (discriminatory), divisible-good, procurement auction. Demand by the auctioneer is uncertain as in the supply function equilibrium model. A closed form expression is derived. Existence of an equilibrium is ensured if the hazard rate of the perfectly inelastic demand is monotonically decreasing and sellers have non-decreasing marginal costs. Multiple equilibria can be ruled out for markets, for which the auctioneer’s demand exceeds suppliers’ capacity with a positive probability. The derived equilibrium can be used to model strategic bidding behaviour in pay-as-bid electricity auctions, such as the balancing mechanism of United Kingdom. Offer curves and mark-ups of the derived equilibrium are compared to results for the SFE of a uniform-price auction.
Subjects: 
Supply Function Equilibrium
Pay-as-bid Auction
Discriminatory Auction
Divisible
JEL: 
C62
D43
D44
L11
L13
L94
Document Type: 
Working Paper

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