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Modeling the competition on the electricity stock market

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  • Victor Avramov

Abstract

A model of competition on the electricity stock market is constructed using Cournot’s competition model and the supply function equilibrium (SFE) model. The main distinctive features of the electricity markets are discussed. The models are then applied to a market with the participation of four manufacturers (a nuclear power plant (NPP) and three coal plants). A specific demand function which gives a good description of the market characteristics is formulated and an estimation is made to determine the marginal costs for producers. Three scenarios are presented in order to demonstrate the applicability of the models used and to shed light on the effects of the changing market environment on prices and market structure. The transmission and distribution losses and the capacity constraints of the manufacturers are not covered.

Suggested Citation

  • Victor Avramov, 2020. "Modeling the competition on the electricity stock market," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 65-79.
    • Handle: RePEc:bas:econth:y:2020:i:1:p:65-79
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    References listed on IDEAS

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    1. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-1277, November.
    2. Green, Richard J & Newbery, David M, 1992. "Competition in the British Electricity Spot Market," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 929-953, October.
    3. Ross Baldick & Ryan Grant & Edward Kahn, 2004. "Theory and Application of Linear Supply Function Equilibrium in Electricity Markets," Journal of Regulatory Economics, Springer, vol. 25(2), pages 143-167, March.
    4. Aleksandr Rudkevich & Max Duckworth & Richard Rosen, 1998. "Modeling Electricity Pricing in a Deregulated Generation Industry: The Potential for Oligopoly Pricing in a Poolco," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 19-48.
    5. Green, Richard J, 1996. "Increasing Competition in the British Electricity Spot Market," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 205-216, June.
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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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