Comparing Supply Function Equilibria of Pay-as-Bid and Uniform-Price Auctions
نویسنده
چکیده
Pär Holmberg January 28, 2006 Abstract This paper derives a Supply Function Equilibrium (SFE) of a pay-as-bid auction (discriminatory auction), such as the balancing market for electric power in Britain. It is shown that a SFE always exists if the hazard rate of the perfectly inelastic demand is monotonically decreasing and marginal costs are non-decreasing. With demand following a Pareto distribution of the second kind, the SFE of a pay-as-bid auction is compared to the SFE of a uniform-price auction, the auction form in most electricity markets. The demand-weighted average price in the former is found to be (weakly) lower than in the latter.
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