Transmission constraints limit competition and arbitrageurs’ possibilities of exploiting price differences between commodities in neighbouring markets. We analyze radial transmission-constrained networks with local demand shocks, where spatially distributed oligopoly producers compete with supply functions, as in wholesale electricity markets. We prove existence and uniqueness of supply-function equilibrium in two-node networks, and we are able to explicitly solve for symmetric supply-function equilibria in two-node and star networks.
Reference:
Holmberg, Pär and Andrew Philpott (2018),
"On Supply-Function Equilibria in Radial Transmission Networks".
European Journal of Operational Research
271(3),
985–1000.