2006–2010

Supply Function Equilibria of Pay-as-Bid Auctions

Reprint No. 2009:30

Author(s): Pär HolmbergYear: 2009 Title: Journal of Regulatory Economics Volume (No.): 36 (2) Pages: 154–177
Online article (restrictions may apply)


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 for a one shot game. Existence of an equilibrium is ensured if the hazard rate of the demand distribution is monotonically decreasing with respect to the shock outcome 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 behavior 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.


Reference:
Holmberg, Pär (2009), "Supply Function Equilibria of Pay-as-Bid Auctions". Journal of Regulatory Economics 36(2), 154–177.

Pär Holmberg

Contact

Ph: +46 8 665 4559
Mob: +46 72 511 6866
Par.Holmberg@ifn.se

Interdisciplinary European Studies

The European Union in a Changing World Order

Pages-from-2019-Oxelheim-m.gif

This book explores how the European Union responds to the ongoing challenges to the liberal international order. These challenges arise both within the EU itself and beyond its borders, and put into question the values of free trade and liberal democracy. 

About the book

Events

Seminars organized by IFN

 

To present ongoing research informal brown-bag seminars are held on Mondays at 11:30 am. This is an opportunity for IFN researchers to test ideas and results.

Academically oriented seminars are most of the time held on Wednesdays at 10 am. At these events researchers from IFN and other institutions present their research.

In addition, IFN organizes seminars open to the public. Topics for these are derived from the IFN research.

Research Institute of Industrial Economics, Grevgatan 34 - 2 fl, Box 55665, SE-102 15 Stockholm, Sweden | Phone: +46-(0)8-665 45 00 | info@ifn.se