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IMA Journal of Management Mathematics Advance Access published online on July 8, 2009
IMA Journal of Management Mathematics, doi:10.1093/imaman/dpp004
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© The authors 2009. Published by Oxford University Press on behalf of the Institute of Mathematics and its Applications. All rights reserved.

Cournot equilibria in oligopolistic electricity markets

M. T. Vespucci{dagger}

Department of Information Technology and Mathematical Models, University of Bergamo, Viale Marconi 5, Dalmine (BG) 24044, Italy

E. Allevi{ddagger}

Department of Quantitative Methods, University of Brescia, Contrada S. Chiara, 50, Brescia 25122, Italy

A. Gnudi§

Department of Mathematics, Statistic, Computer Science and Applications, University of Bergamo, Via dei Caniana 2, Bergamo 24127, Italy

M. Innorta

Department of Information Technology and Mathematical Models, University of Bergamo, Viale Marconi 5, Dalmine (BG) 24044, Italy

{dagger} Corresponding author. Email: maria-teresa.vespucci{at}unibg.it

{ddagger} Email: allevi{at}eco.unibs.it

§ Email: adriana.gnudi{at}unibg.it

Email: mario.innorta{at}fastwebnet.it

Received on 12 June 2007. Accepted on 16 July 2008.

Electricity markets are undergoing a liberalization process aiming at introducing competition and enhancing efficiency. In liberalized markets, quantities and prices are determined by the interactions among the different players: power producers determine their production levels so as to maximize their own profits, while energy prices and demand levels to be satisfied are decided by an independent system operator (ISO). Deregulated electricity markets are very often oligopolistic, therefore the market equilibrium resulting from the interactions among power producers and ISO can be well represented by oligopolistic models. Thus, models based on game theory are used to describe the oligopolistic strategic interactions between the firms involved, representing the market as a non-cooperative game where players decide their strategy in order to maximize their profit. This paper presents a model that describes the strategic interactions of firms based on the assumption that the generation firms are Cournot oligopolists. A linear demand curve is assumed. Moreover, a new iterative algorithm is presented for determining the Cournot equilibrium and a case study is discussed.

Keywords: equilibrium problem; oligopolistic model; electricity market


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