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Dynamic Competition in Electricity Markets: Hydroelectric and Thermal Generation


  • Talat S. Genc

    () (Department of Economics,University of Guelph)

  • Henry Thille

    () (Department of Economics, University of Guelph)


We study competition between hydro and thermal electricity generators that face uncertainty over demand and water flows where the hydro generator is constrained by water flows and the thermal generator by capacity. We compute the Feedback equilibrium for the in?nite horizon game and show that there can be strategic withholding of water by the hydro generator. When water inflow is relatively low, however, the hydro generator may use more water than efficient as it faces an inefficiently low shadow price of water in this case. The inefficiency of the market outcome is tempered by the capacity constraints: for a large range of possible thermal production capacities and water flow levels, welfare loss under the duopoly market structure is much less than would occur in the absence of water and capacity constraints.

Suggested Citation

  • Talat S. Genc & Henry Thille, 2011. "Dynamic Competition in Electricity Markets: Hydroelectric and Thermal Generation," Working Papers 1104, University of Guelph, Department of Economics and Finance.
  • Handle: RePEc:gue:guelph:2011-04.

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    References listed on IDEAS

    1. Thille, Henry, 2006. "Inventories, market structure, and price volatility," Journal of Economic Dynamics and Control, Elsevier, vol. 30(7), pages 1081-1104, July.
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    Cited by:

    1. Moita, Rodrigo Menon Simões & Monte, Daniel, 2017. "Competition in cascades," Textos para discussão 456, FGV/EESP - Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
    2. Abdessalem Abbassi & Ahlem Dakhlaoui & Lota D.Tamini, 2014. "Risk Aversion and Dynamic Games Between Hydroelectric Operators under Uncertainty," Cahiers de recherche CREATE 2014-4, CREATE.
    3. Robles, Jack, 2016. "Infinite horizon hydroelectricity games," Working Paper Series 5075, Victoria University of Wellington, School of Economics and Finance.

    More about this item


    Electricity markets; Electricity markets; Hydroelectricity; Imperfect Competition;

    JEL classification:

    • 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
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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