Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/82743
Authors: 
Holmberg, Pär
Year of Publication: 
2005
Series/Report no.: 
Working Paper, Department of Economics, Uppsala University 2005:17
Abstract: 
This paper derives a Supply Function Equilibrium (SFE) of a pay-as-bid auction, also called discriminatory auction. Such an auction is used in the balancing market for electric power in Britain. For some probability distributions of demand a pure-strategy equilibrium does not exist. If demand follows an inverse polynomial probability distribution, SFE always exists. Assuming this probability distribution, the pay-as-bid procurement auction is compared to a SFE of a uniform-price procurement auction, the auction form of most electric power markets. The demand-weighted average price is found to be equal or lower in the pay-as-bid procurement auction.
Subjects: 
Supply function equilibrium
pay-as-bid auction
uniform-price auction
discriminatory auction
oligopoly
capacity constraint
wholesale electricity market
JEL: 
C62
D43
D44
L11
L13
L94
Document Type: 
Working Paper

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