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The Inc-Dec Game and How to Mitigate It

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Abstract

The power exchange and the real-time markets used by the system operator differ in how system constraints are managed. This can result in regulatory arbitrage, which can increase consumer costs, increase the risk of power outages and distort investment incentives. This paper uses a game-theoretical approach to study these problems and proposes various measures to reduce them. For example, zones and grid tariffs can be adjusted. Moreover, regulations of real-time markets can improve, and transmission system operators can implement measures to increase the capacity of the existing grid.

Suggested Citation

  • Holmberg, Pär, 2024. "The Inc-Dec Game and How to Mitigate It," Working Paper Series 1512, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:1512
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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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