A large oligopoly competition model with an application to the Midwest electricity markets

Abstract

This paper presents a large spatial gaming model with price caps for the Midwest electricity markets. Price caps are enforced in several deregulated regional electricity markets in the USA, a logical step is to reflect this reality in imperfect competition modeling. Unfortunately, most current gaming models have not included any price cap formulation. This paper is one of the first to address the issue. A transportation formulation is used for representing the spatial nature of an electrical network. An algorithm is proposed to find a Nash equilibrium under the enforcement of price caps based on the Kuhn-Tucker vector optimization theorem. Case studies show the successful application of the model. The conclusion is that, given appropriate price caps, market power impact can be reduced in the short run.