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Competition and cooperation in a PFF game theoretic model of electrical energy trade

Author

Listed:
  • David Csercsik

    (P zm ny P‚ter Catholic University Faculty of Information Technology)

Abstract

A cooperative game theoretic framework is introduced to study the behavior of cooperating and competing electrical energy providers considering price-preference rational consumers. We analyze the interactions of generators in an idealized environment described by a DC load flow model where the network is lossless and is operated by an independent regulator who ensures network stability and fulfillment of consumption needs while taking into account the preferences of consumers over generators. We assume an iterative process in which the generators publish their price offers simultaneously in each step, based on which the consumers preferences are determined. The model deals with network congestion and safety as not every generator-consumer matching is allowed to ensure the fault tolerant operation of the transmission system. To make the model as simple as possible we do not deal with transmission fees, the profit of the generators is determined as the difference between their income, and their production cost which is assumed to be linearly decreasing with the produced quantity. Any non-monopolistic proper subset of the generators may cooperate and harmonize their offered prices to increase their resulting profit. Since we allow the redistribution of profits among cooperating generators, a transferable utility game theoretic framework is used. Furthermore, as cooperation affects the outsiders as well, the resulting game is defined in partition function form. The model is able to demonstrate some interesting benefits of cooperation as well as the effect of market regulations and asymmetric information on the resulting profits and total social cost.

Suggested Citation

  • David Csercsik, 2013. "Competition and cooperation in a PFF game theoretic model of electrical energy trade," KRTK-KTI WORKING PAPERS 1310, Institute of Economics, Centre for Economic and Regional Studies.
    • Handle: RePEc:has:discpr:1310
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    References listed on IDEAS

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    1. László Á. Kóczy & Dávid Csercsik, 2011. "Externalities in the games over electrical power transmission networks," Working Paper Series 1103, Óbuda University, Keleti Faculty of Business and Management.
    2. Neuhoff, Karsten & Barquin, Julian & Boots, Maroeska G. & Ehrenmann, Andreas & Hobbs, Benjamin F. & Rijkers, Fieke A.M. & Vazquez, Miguel, 2005. "Network-constrained Cournot models of liberalized electricity markets: the devil is in the details," Energy Economics, Elsevier, vol. 27(3), pages 495-525, May.
    3. Habis, Helga & Herings, P. Jean-Jacques, 2011. "Transferable utility games with uncertainty," Journal of Economic Theory, Elsevier, vol. 146(5), pages 2126-2139, September.
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    6. Gately, Dermot, 1974. "Sharing the Gains from Regional Cooperation: A Game Theoretic Application to Planning Investment in Electric Power," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(1), pages 195-208, February.
    7. 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.
    8. R. M. Thrall & W. F. Lucas, 1963. "N‐person games in partition function form," Naval Research Logistics Quarterly, John Wiley & Sons, vol. 10(1), pages 281-298, March.
    9. Yihsu Chen & Benjamin Hobbs & Sven Leyffer & Todd Munson, 2006. "Leader-Follower Equilibria for Electric Power and NO x Allowances Markets," Computational Management Science, Springer, vol. 3(4), pages 307-330, September.
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    Keywords

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    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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