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Game-theoretical, Strategic forward Contracting in the Electricity Market

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Author Info

  • Holmberg, Pär

    ()
    (Research Institute of Industrial Economics (IFN))

Abstract

Forward 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 Info

Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 756.

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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.
Handle: RePEc:hhs:iuiwop:0756

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Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
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Related research

Keywords: Supply Function Equilibrium; Forward Market; Strategic Contracting; Arbitrage; Strategic Substitutes; Oligopoly; Electricity Market;

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Cited by:
  1. 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.
  2. Miguel Vazquez & Michelle Hallac, 2014. "Analysis Of The Strategic Use Of Forward Contracting In Electricity Markets," Anais do XLI Encontro Nacional de Economia [Proceedings of the 41th Brazilian Economics Meeting] 129, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].

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