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Oligopolistic Competition in the Japanese Wholesale Electricity Market: A Linear Complementarity Approach

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  • TANAKA Makoto

Abstract

Using a linear complementarity approach, we simulate the Japanese wholesale electricity market as a transmission-constrained Cournot market. Following Hobbs (2001), our model adopts the Cournot assumption in the energy market and the Bertrand assumption in the transmission market. The Bertrand assumption means that generators consider transmission charges as being exogenous, which can be interpreted as a kind of bounded rationality. We then present a simulation analysis of the Japanese wholesale electricity market, considering eight areas linked by interconnection transmission lines. Specifically, this paper examines the potential effects of both investment in interconnection transmission lines and the divestiture of dominant players' power plants.

Suggested Citation

  • 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).
    • Handle: RePEc:eti:dpaper:07023
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    References listed on IDEAS

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    1. Severin Borenstein & James. Bushnell & Steven Stoft, 2000. "The Competitive Effects of Transmission Capacity in A Deregulated Electricity Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 294-325, Summer.
    2. SMEERS, Yves & WEI, Jing-Yuan, 1997. "Spatially oligopolistic model with nodal opportunity cost pricing for transmission capacity reservations," LIDAM Discussion Papers CORE 1997026, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. TANAKA Makoto, 2006. "A Simulation Analysis of Transmission - Constrained Oligopoly in the Wholesale Electricity Market (Japanese)," Discussion Papers (Japanese) 06010, Research Institute of Economy, Trade and Industry (RIETI).
    4. Cardell, Judith B. & Hitt, Carrie Cullen & Hogan, William W., 1997. "Market power and strategic interaction in electricity networks," Resource and Energy Economics, Elsevier, vol. 19(1-2), pages 109-137, March.
    5. Borenstein, Severin & Bushnell, James & Kahn, Edward & Stoft, Steven, 1995. "Market power in California electricity markets," Utilities Policy, Elsevier, vol. 5(3-4), pages 219-236.
    6. Tanaka, Makoto, 2009. "Transmission-constrained oligopoly in the Japanese electricity market," Energy Economics, Elsevier, vol. 31(5), pages 690-701, September.
    7. HASUIKE Katsuhito & KANEMOTO Yoshitsugu, 2005. "Policy Evaluation for Oligopolistic Markets - A Case of Wholesale Electricity Market - (Japanese)," Discussion Papers (Japanese) 05024, Research Institute of Economy, Trade and Industry (RIETI).
    8. Shu-ichi Akiyama & Nobuhiro Hosoe, 2006. "A Spatial Equilibrium Analysis of Transmission Charge Reform in Japan's Electric Power Industry," Discussion papers 06022, Research Institute of Economy, Trade and Industry (RIETI).
    9. 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).
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