On the supply function equilibrium and its applications in electricity markets

The paper deals with the Supply Function Equilibrium (SFE) as a model of competition in electricity markets. It introduces theoretical advancement through relaxing traditional assumptions of continuity of supply functions and provides a foundation for efficient computational algorithms. Two special examples are considered. One demonstrates that continuous equilibrium could be impossible while an infinite set of discontinuous equilibria exists. Another example proves the convergence to a linear equilibrium through learning in linear supply system. A possibility of a similar convergence for piece-wise linear system is being discussed.