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Network Models of Spatial Oligopoly with an Application to Deregulation of Electricity Generation

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  • Benjamin F. Hobbs

    (Case Western Reserve University, Cleveland, Ohio)

Abstract

Because of the existence of transmission costs and significant scale economies in power production, deregulation of electricity generation would lead to spatial oligopolistic markets. This paper uses linear programs to obtain short-run spatial price equilibria for a deregulated bulk power market in upstate New York. These models, unlike most previous models of imperfect competition, capture spatial variations in production costs and demand functions. We present two models. One calculates a Nash-Bertrand equilibrium, in which each firm believes that rivals will not react to price changes. This equilibrium represents the most intense level of competition to be expected. The other model yields limit prices that are designed to discourage new firms from entering the market.

Suggested Citation

  • Benjamin F. Hobbs, 1986. "Network Models of Spatial Oligopoly with an Application to Deregulation of Electricity Generation," Operations Research, INFORMS, vol. 34(3), pages 395-409, June.
    • Handle: RePEc:inm:oropre:v:34:y:1986:i:3:p:395-409
    DOI: 10.1287/opre.34.3.395
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    Citations

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    Cited by:

    1. SANIN, Maria Eugenia, 2006. "Market design in wholesale electricity markets," LIDAM Discussion Papers CORE 2006100, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Cardell, Judith B. & Hitt, Carrie Cullen & Hogan, William W., 1997. "Market power and strategic interaction in electricity networks," Resource and Energy Economics, Elsevier, vol. 19(1-2), pages 109-137, March.
    3. Edet Okon Anwana & Boniface Akpan, 2016. "Power Sector Reforms and Electricity Supply Growth in Nigeria," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 3(1), pages 94-102.
    4. E. J. Anderson & A. B. Philpott, 2002. "Using Supply Functions for Offering Generation into an Electricity Market," Operations Research, INFORMS, vol. 50(3), pages 477-489, June.
    5. Hesamzadeh, M.R. & Biggar, D.R. & Bunn, D.W. & Moiseeva, E., 2020. "The impact of generator market power on the electricity hedge market," Energy Economics, Elsevier, vol. 86(C).
    6. Markus Ksoll, 2001. "Two stages of uniform delivered pricing and a monopolistic network in competitive electricity markets," ERSA conference papers ersa01p280, European Regional Science Association.
    7. Sertaç Oruç & Scott Cunningham, 2014. "Transmission Rights to the Electrical Transmission Grid in the Post Liberalization Era," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 5(4), pages 686-705, December.
    8. Wei Jing-Yuan & Yves Smeers, 1999. "Spatial Oligopolistic Electricity Models with Cournot Generators and Regulated Transmission Prices," Operations Research, INFORMS, vol. 47(1), pages 102-112, February.
    9. Uday V. Shanbhag & Gerd Infanger & Peter W. Glynn, 2011. "A Complementarity Framework for Forward Contracting Under Uncertainty," Operations Research, INFORMS, vol. 59(4), pages 810-834, August.
    10. David Pozo & Enzo Sauma & Javier Contreras, 2017. "Basic theoretical foundations and insights on bilevel models and their applications to power systems," Annals of Operations Research, Springer, vol. 254(1), pages 303-334, July.
    11. Helman, Udi, 2006. "Market power monitoring and mitigation in the US wholesale power markets," Energy, Elsevier, vol. 31(6), pages 877-904.
    12. Tamaschke, R. & Docwra, G. & Stillman, R., 2005. "Measuring market power in electricity generation: A long-term perspective using a programming model," Energy Economics, Elsevier, vol. 27(2), pages 317-335, March.

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