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Cournot Competition in the Electricity Market with Transmission Constraints

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  • Bert Willems

Abstract

This paper studies the market power of generators in the electricity market when transmission capacity is scarce. We consider a simple world of two generators providing electricity to their consumers through a single transmission line. In the literature, different Cournot equilibrium concepts have been developed. This paper applies these concepts and explains the implicit assumptions on the behavior of the System Operator made in those papers. We show that these implicit assumptions are not realistic. For an alternative role of the System Operator, we solve the Cournot equilibrium and compare the outcome. Furthermore, we show that the axiomatic equilibrium concept of Smeers and Wei (1997) is linked with the model of Oren (1997) and can also be defined as a Nash Equilibrium.

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Bibliographic Info

Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën in its series Center for Economic Studies - Discussion papers with number ces0024.

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Date of creation: Mar 2000
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Handle: RePEc:ete:ceswps:ces0024

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Cited by:
  1. Guido Pepermans & Bert Willems, 2005. "The potential impact of cross-ownership in transmission: An application to the Belgian electricity market," Energy, Transport and Environment Working Papers Series ete0501, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment.
  2. Pepermans, Guido & Willems, Bert, 2004. "Ramsey Pricing in a Congested Network with Market Power in Generation: A Numerical Illustration for Belgium," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/199861, Katholieke Universiteit Leuven.
  3. Alejandro Ibarra-Yunez, 2004. "Strategic Conduct and Access Discrimination, in the Semi-Liberalized Electricity Sector in Mexico," Frontiers in Finance and Economics, SKEMA Business School, vol. 1(1), pages 57-69, June.
  4. Daniel A. Benitez, 2004. "On Quantity Competition and Transmission Constraints in Electricity Market," Econometric Society 2004 Latin American Meetings 98, Econometric Society.
  5. Robert Wilson, 2005. "Supply Function Equilibrium in a Constrained Transmission System," Levine's Bibliography 784828000000000087, UCLA Department of Economics.

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