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Optimal Willingness to Supply Wholesale Electricity under Asymmetric Linearized Marginal Costs

Author

Listed:
  • David Hudgins

    (Department of Economics, University of Oklahoma, USA)

Abstract

This analysis derives the profit-maximizing willingness to supply functions for singleplant and multi-plant wholesale electricity suppliers that all incur linear marginal costs. The optimal strategy must result in linear residual demand functions in the absence of capacity constraints. This necessarily leads to a linear pricing rule structure that can be used by firm managers to construct their offer curves and to serve as a benchmark to evaluate firm profit-maximizing behavior. The procedure derives the cost functions and the residual demand curves for merged or multi-plant generators, and uses these to construct the individual generator plant offer curves for a multi-plant firm.

Suggested Citation

  • David Hudgins, 2012. "Optimal Willingness to Supply Wholesale Electricity under Asymmetric Linearized Marginal Costs," International Journal of Energy Economics and Policy, Econjournals, vol. 2(4), pages 307-317.
    • Handle: RePEc:eco:journ2:2012-04-9
    as

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    References listed on IDEAS

    as
    1. Edward J. Anderson & Xinmin Hu, 2008. "Finding Supply Function Equilibria with Asymmetric Firms," Operations Research, INFORMS, vol. 56(3), pages 697-711, June.
    2. Holmberg, Pär & Newbery, David & Ralph, Daniel, 2013. "Supply function equilibria: Step functions and continuous representations," Journal of Economic Theory, Elsevier, vol. 148(4), pages 1509-1551.
    3. Richard Green, 2007. "Nodal pricing of electricity: how much does it cost to get it wrong?," Journal of Regulatory Economics, Springer, vol. 31(2), pages 125-149, April.
    4. Genc, Talat S. & Reynolds, Stanley S., 2011. "Supply function equilibria with capacity constraints and pivotal suppliers," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 432-442, July.
    5. Wolak, Frank A., 2010. "Using restructured electricity supply industries to understand oligopoly industry outcomes," Utilities Policy, Elsevier, vol. 18(4), pages 227-246, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Wholesale Electricity; Cost; Willingness to Supply; Linear Analysis; Multi-Plant; Asymmetric;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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