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Research Institute of Industrial Economics (IFN) Working Paper Series

No 945:
Supply Function Equilibria in Networks with Transport Constraints

Pär Holmberg () and Andrew Philpott

Abstract: Transport constraints limit competition and arbitrageurs possibilities of exploiting price differences between commodities in neighbouring markets. We analyze a transport-constrained network with local demand shocks, where spatially distributed oligopoly producers compete with supply functions, as in wholesale electricity markets. Uniqueness and existence results are proven, and we are able to explicitly solve for symmetric supply-function equilibria in some special cases.

Keywords: Spatial competition; Multi-unit auction; Supply-function equilibrium; Transmission network; Wholesale electricity markets; (follow links to similar papers)

JEL-Codes: C72; D43; D44; L91; (follow links to similar papers)

72 pages, December 18, 2012, Revised August 10, 2015

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