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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))

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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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Publisher 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:
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;

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

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This page was last updated on 2009-11-25.

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