On supply-function equilibria in radial transmission networks

Abstract Transmission constraints limit competition and arbitrageurs’ possibilities of exploiting price differences between commodities in neighbouring markets. We analyze radial transmission-constrained networks with local demand shocks, where spatially distributed oligopoly producers compete with supply functions, as in wholesale electricity markets. We prove existence and uniqueness of supply-function equilibrium in two-node networks, and we are able to explicitly solve for symmetric supply-function equilibria in two-node and star networks.