Game-theoretical, Strategic forward Contracting in the Electricity Market
AbstractForward sales is a credible commitment to aggressive spot market bidding, and it mitigates producers’ market power in electricity markets. Still it can be profitable for a producer to make such a commitment if it results in a soft response from competitors in the spot market (strategies are substitutes). The optimal contracting level of a risk-neutral producer is determined by the extent to which strategies are substitutes and the slope of the residual demand in the forward market. Conditions under which strategies are substitutes are identified for a two-stage game with supply function competition and capacity constrained producers.
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Bibliographic InfoPaper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 756.
Length: 27 pages
Date of creation: 24 Jun 2008
Date of revision:
Publication status: Published as Holmberg, Pär, 'Strategic Forward Contracting in the Wholesale Electricity Market' in Energy Journal, 2011, pages 169-202.
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Supply Function Equilibrium; Forward Market; Strategic Contracting; Arbitrage; Strategic Substitutes; Oligopoly; Electricity Market;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-07-05 (All new papers)
- NEP-COM-2008-07-05 (Industrial Competition)
- NEP-CSE-2008-07-05 (Economics of Strategic Management)
- NEP-ENE-2008-07-05 (Energy Economics)
- NEP-GTH-2008-07-05 (Game Theory)
- NEP-IND-2008-07-05 (Industrial Organization)
- NEP-MIC-2008-07-05 (Microeconomics)
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- Holmberg, Pär & Newbery, David, 2010.
"The supply function equilibrium and its policy implications for wholesale electricity auctions,"
Elsevier, vol. 18(4), pages 209-226, December.
- Holmberg, P. & Newbery, D., 2010. "The Supply Function Equilibrium and its Policy Implications for Wholesale Electricity Auctions," Cambridge Working Papers in Economics 1016, Faculty of Economics, University of Cambridge.
- Holmberg, Pär & Newbery, David, 2009. "The Supply Function Equilibrium and Its Policy Implications for Wholesale Electricity Auctions," Working Paper Series 812, Research Institute of Industrial Economics.
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