S-WoPEc
 
Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
Research Institute of Industrial Economics (IFN) Working Paper Series

No 787:
Supply Function Equilibria of Pay-as-Bid Auctions

Pär Holmberg ()

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.

Keywords: Supply Function Equilibrium; Pay-as-bid Auction; Discriminatory Auction; Divisible; (follow links to similar papers)

JEL-Codes: C62; D43; D44; L11; L13; L94; (follow links to similar papers)

30 pages, January 29, 2009

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

wp787.pdf    PDF-file
Download Statistics
This paper is published as:
Holmberg, Pär, (2009), 'Supply Function Equilibria of Pay-as-Bid Auctions', Journal of Regulatory Economics, Vol. 36, pages 154-177



Questions (including download problems) about the papers in this series should be directed to Elisabeth Gustafsson ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:iuiwop:0787 This page was generated on 2016-10-12 00:02:48