IDEAS home Printed from https://ideas.repec.org/a/spr/joptap/v196y2023i2d10.1007_s10957-022-02147-3.html
   My bibliography  Save this article

Market Power and Efficiency Analysis in Bi-level Energy Transmission Market

Author

Listed:
  • Chia-Yen Lee

    (National Taiwan University)

  • Chin-Yi Tseng

    (National Cheng Kung University)

Abstract

We study a bi-level energy market and a transmission system that sends the energy supply generated in the upstream market to consumers in the downstream market. The players including manufacturers and wholesalers in this market can exercise the market power to affect the productive efficiency of the energy supply. To analyze the impact of market power, we formulate the mixed complementarity problems to identify the Nash equilibrium and use a directional distance function to estimate the efficiency by the directional vector toward the Nash equilibrium. We investigate two cases of market power in the energy market: wholesalers as leaders, or bilateral bargaining power between manufacturers and wholesalers. The numerical study of a power generation market is conducted and the results show that the Nash equilibriums in the two cases provide the insights to drive the productivity and support environmental policies. Particularly, a sensitivity analysis shows that price volatility in the upstream transmission market significantly influences the equilibrium solution.

Suggested Citation

  • Chia-Yen Lee & Chin-Yi Tseng, 2023. "Market Power and Efficiency Analysis in Bi-level Energy Transmission Market," Journal of Optimization Theory and Applications, Springer, vol. 196(2), pages 544-569, February.
    • Handle: RePEc:spr:joptap:v:196:y:2023:i:2:d:10.1007_s10957-022-02147-3
    DOI: 10.1007/s10957-022-02147-3
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10957-022-02147-3
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10957-022-02147-3?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Steven A. Gabriel & Antonio J. Conejo & J. David Fuller & Benjamin F. Hobbs & Carlos Ruiz, 2013. "Complementarity Modeling in Energy Markets," International Series in Operations Research and Management Science, Springer, edition 127, number 978-1-4419-6123-5, September.
    2. Ke Wang & Yujiao Xian & Chia-Yen Lee & Yi-Ming Wei & Zhimin Huang, 2019. "On selecting directions for directional distance functions in a non-parametric framework: a review," Annals of Operations Research, Springer, vol. 278(1), pages 43-76, July.
    3. Fried, Harold O. & Lovell, C. A. Knox & Schmidt, Shelton S. (ed.), 2008. "The Measurement of Productive Efficiency and Productivity Growth," OUP Catalogue, Oxford University Press, number 9780195183528.
    4. Lee, Chia-Yen, 2016. "Nash-profit efficiency: A measure of changes in market structures," European Journal of Operational Research, Elsevier, vol. 255(2), pages 659-663.
    5. Tseng, Chin-Yi & Lee, Chia-Yen & Wang, Qunwei & Wu, Changsong, 2022. "Data envelopment analysis and stochastic equilibrium analysis for market power investigation in a bi-level market," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 161(C).
    6. Benjamin F. Hobbs & J. S. Pang, 2007. "Nash-Cournot Equilibria in Electric Power Markets with Piecewise Linear Demand Functions and Joint Constraints," Operations Research, INFORMS, vol. 55(1), pages 113-127, February.
    7. Roger B. Myerson, 1999. "Nash Equilibrium and the History of Economic Theory," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1067-1082, September.
    8. Yang, Dong & Zhang, Lingge & Luo, Meifeng & Li, Feng, 2020. "Does shipping market affect international iron ore trade?– An equilibrium analysis," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 144(C).
    9. Lee, Chia-Yen & Charles, Vincent, 2022. "A robust capacity expansion integrating the perspectives of marginal productivity and capacity regret," European Journal of Operational Research, Elsevier, vol. 296(2), pages 557-569.
    10. Fare, Rolf & Grosskopf, Shawna & Weber, William L., 2006. "Shadow prices and pollution costs in U.S. agriculture," Ecological Economics, Elsevier, vol. 56(1), pages 89-103, January.
    11. Zhuang, Jifang & Gabriel, Steven A., 2008. "A complementarity model for solving stochastic natural gas market equilibria," Energy Economics, Elsevier, vol. 30(1), pages 113-147, January.
    12. Zugno, Marco & Morales, Juan Miguel & Pinson, Pierre & Madsen, Henrik, 2013. "A bilevel model for electricity retailers' participation in a demand response market environment," Energy Economics, Elsevier, vol. 36(C), pages 182-197.
    13. Chia -Yen Lee & Andrew L. Johnson, 2015. "Measuring Efficiency in Imperfectly Competitive Markets: An Example of Rational Inefficiency," Journal of Optimization Theory and Applications, Springer, vol. 164(2), pages 702-722, February.
    14. Lee, Chia-Yen, 2018. "Mixed-strategy Nash equilibrium in data envelopment analysis," European Journal of Operational Research, Elsevier, vol. 266(3), pages 1013-1024.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tseng, Chin-Yi & Lee, Chia-Yen & Wang, Qunwei & Wu, Changsong, 2022. "Data envelopment analysis and stochastic equilibrium analysis for market power investigation in a bi-level market," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 161(C).
    2. Lee, Chia-Yen & Wang, Ke, 2019. "Nash marginal abatement cost estimation of air pollutant emissions using the stochastic semi-nonparametric frontier," European Journal of Operational Research, Elsevier, vol. 273(1), pages 390-400.
    3. Fangqing Wei & Junfei Chu & Jiayun Song & Feng Yang, 2019. "A cross-bargaining game approach for direction selection in the directional distance function," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 41(3), pages 787-807, September.
    4. Lee, Chia-Yen, 2018. "Mixed-strategy Nash equilibrium in data envelopment analysis," European Journal of Operational Research, Elsevier, vol. 266(3), pages 1013-1024.
    5. Ke Wang & Yujiao Xian & Chia-Yen Lee & Yi-Ming Wei & Zhimin Huang, 2019. "On selecting directions for directional distance functions in a non-parametric framework: a review," Annals of Operations Research, Springer, vol. 278(1), pages 43-76, July.
    6. Romano, Giulia & Molinos-Senante, María & Carosi, Laura & Llanquileo-Melgarejo, Paula & Sala-Garrido, Ramón & Mocholi-Arce, Manuel, 2021. "Assessing the dynamic eco-efficiency of Italian municipalities by accounting for the ownership of the entrusted waste utilities," Utilities Policy, Elsevier, vol. 73(C).
    7. Hampf, Benjamin, 2017. "Rational inefficiency, adjustment costs and sequential technologies," European Journal of Operational Research, Elsevier, vol. 263(3), pages 1095-1108.
    8. Lee, Chia-Yen, 2016. "Nash-profit efficiency: A measure of changes in market structures," European Journal of Operational Research, Elsevier, vol. 255(2), pages 659-663.
    9. Daeho Kim & Dong Gu Choi, 2023. "The aggregator’s contract design problem in the electricity demand response market," Operational Research, Springer, vol. 23(1), pages 1-47, March.
    10. Sina Heidari, 2020. "How Strategic Behavior of Natural Gas Exporters Can Affect the Sectors of Electricity, Heating, and Emission Trading during the European Energy Transition," Energies, MDPI, vol. 13(19), pages 1-20, September.
    11. Hampf, Benjamin, 2016. "Rational Inefficiency, Adjustment Costs and Sequential Technologies," VfS Annual Conference 2016 (Augsburg): Demographic Change 145796, Verein für Socialpolitik / German Economic Association.
    12. Buehler, Stefan & Burger, Anton & Ferstl, Robert, 2010. "The investment effects of price caps under imperfect competition: A note," Economics Letters, Elsevier, vol. 106(2), pages 92-94, February.
    13. Wang, Ke & Yang, Kexin & Wei, Yi-Ming & Zhang, Chi, 2018. "Shadow prices of direct and overall carbon emissions in China’s construction industry: A parametric directional distance function-based sensitive estimation," Structural Change and Economic Dynamics, Elsevier, vol. 47(C), pages 180-193.
    14. Malin Song & Jianlin Wang & Jiajia Zhao & Tomas Baležentis & Zhiyang Shen, 2020. "Production and safety efficiency evaluation in Chinese coal mines: accident deaths as undesirable output," Annals of Operations Research, Springer, vol. 291(1), pages 827-845, August.
    15. Lee, Chia-Yen, 2014. "Meta-data envelopment analysis: Finding a direction towards marginal profit maximization," European Journal of Operational Research, Elsevier, vol. 237(1), pages 207-216.
    16. Qingxian An & Ping Wang & Honglin Yang & Zongrun Wang, 2021. "Fixed cost allocation in two-stage system using DEA from a noncooperative view," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 43(4), pages 1077-1102, December.
    17. Sebastián Lozano & Narges Soltani, 2018. "DEA target setting using lexicographic and endogenous directional distance function approaches," Journal of Productivity Analysis, Springer, vol. 50(1), pages 55-70, October.
    18. Sebastián Lozano & Narges Soltani & Akram Dehnokhalaji, 2020. "A compromise programming approach for target setting in DEA," Annals of Operations Research, Springer, vol. 288(1), pages 363-390, May.
    19. Ester Gutiérrez & Sebastián Lozano, 2020. "Benchmarking Formula One auto racing circuits: a two stage DEA approach," Operational Research, Springer, vol. 20(4), pages 2059-2083, December.
    20. Barros, Carlos Pestana & Williams, Jonathan, 2013. "The random parameters stochastic frontier cost function and the effectiveness of public policy: Evidence from bank restructuring in Mexico," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 98-108.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:joptap:v:196:y:2023:i:2:d:10.1007_s10957-022-02147-3. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.