This Website uses cookies. By using this website you are agreeing to our use of cookies and to the terms and conditions listed in our data protection policy. Read more

Unique supply function equilibrium with capacity constraints

In electricity auctions producers submit supply functions specifying the amount they are willing to produce at various prices. In Supply Function Equilibrium (SFE), every firm commits to the supply function that maximises expected profit given the supply functions of the competitors. A basic weakness of the SFE is the presence of multiple equilibria. This paper shows that there is unique equilibrium if capacity constraints in the market bind with a positive probability. The equilibrium is determined by the price cap and the market capacity.

Project manager
Pär Holmberg

+46 (0)8 665 4559
+46 (0)72 511 6866
par.holmberg@ifn.se