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Supply Function Competition in the Spanish Wholesale Electricity Market

We represent the Spanish wholesale market as a supply function com�petition model. Theoretically, the larger generators� supply curves for each plant should be to the left of the supply curves of plants owned by smaller generators. We test this prediction for fuel plants using data from the Spanish Market Op�erator (OMEL) from January 2002 to December 2005. Our empirical results are consistent with the model predictions and suggest that the supply function model better fits data than a discrete-bid auction model since large generators behave as price-makers irrespective whether they are the marginal firms at the auction.

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Energy Specializations: Energy Modeling – Energy Data, Modeling, and Policy Analysis; Electricity – Markets and Prices

JEL Codes:
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
D42 - Market Structure, Pricing, and Design: Monopoly

Keywords: Supply function, Competition, Electricity market

DOI: 10.5547/ISSN0195-6574-EJ-Vol31-No4-6

Published in Volume 31, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.