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Spatially oligopolistic model with opportunity cost pricing for transmission capacity reservations - A variational inequality approach

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  • SMEERS, Yves

    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

  • WEI, Jing- Yuan

    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

Abstract

Two markets co-exist in a unbundled electricity supply industry: the one of the electricity supply and the one of transmission capacity reservations. The first one could be assumed as an oligopoly, and the second one, as a natural monopoly, is regulated. The prices in the first market are determined by an oligopolistic equilibrium. The prices in the second market are set equal to the opportunity costs. The strong interaction of the behavior of the two markets requires a new concept of equilibrium. In this equilibrium, the two markets must be simultaneously in their own equilibrium: Nash equilibrium in the first market and market-clearing equilibrium in the second. An equilibrium of the market is defined and variational inequality approach is used to solve the problem. A simulation using this model is done for an electricity supply market organized across 4 European countries.

Suggested Citation

  • SMEERS, Yves & WEI, Jing- Yuan, 1997. "Spatially oligopolistic model with opportunity cost pricing for transmission capacity reservations - A variational inequality approach," LIDAM Discussion Papers CORE 1997017, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:1997017
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    File URL: https://sites.uclouvain.be/core/publications/coredp/coredp1997.html
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    Cited by:

    1. Daniel A. Benitez, 2004. "On Quantity Competition and Transmission Constraints in Electricity Market," Econometric Society 2004 Latin American Meetings 98, Econometric Society.
    2. Robert Wilson, 2008. "Supply Function Equilibrium in a Constrained Transmission System," Operations Research, INFORMS, vol. 56(2), pages 369-382, April.
    3. TANAKA Makoto, 2007. "Oligopolistic Competition in the Japanese Wholesale Electricity Market: A Linear Complementarity Approach," Discussion papers 07023, Research Institute of Economy, Trade and Industry (RIETI).
    4. Neuhoff, K., 2003. "Integrating Transmission and Energy Markets Mitigates Market Power," Cambridge Working Papers in Economics 0310, Faculty of Economics, University of Cambridge.
    5. Pepermans, Guido & Willems, Bert, 2010. "Cost Recovery in Congested Electricity Networks," Working Papers 2010/22, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.

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