Solving Mixed Strategy Nash-Cournot Equilibria under Generation and Transmission Constraints in Electricity Market

Lee, Kwang-Ho

doi:10.5370/jeet.2013.8.4.675

Cited by 3 publications

(3 citation statements)

References 25 publications

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“…Competitors' interactions are established by a NE in a cooperative market with pure strategy. We discard a mixed strategy since it may need a new algorithm based on heuristics to find such mixed strategy NE as presented by Lee (2013) and this topic is out of the scope of this study. On the other hand, the players decide to invest at the same time in the optimal capacity that provides the maximum NPV and the project is not deferred.…”

Section: Stackelberg's Model Of Duopolymentioning

confidence: 99%

Real options valuation with duopoly game-theoretic approach and regime switching

Diaz¹

2022

Preprint

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<p>New product demand continuously fluctuates through the life of the product. As a result, markets usually experience high volatility due to fluctuating demand. Hence, organizations must rapidly adapt and be flexible with such volatility. Management decisions cannot rely on traditional models that assume economic variables to be constant over time. Therefore, companies must advance and implement adequate strategies in resource allocation that help them survive in uncertain markets, and mitigate the associated risk from market uncertainty. This research aims to investigate product introduction strategies where two micro-economic theories can be applied: game-theoretic approach and a real options valuation. Specifically, a real options valuation framework with a flexible capacity that can be used to calculate the Net Present Value (NPV) and the optimal initial capacity to invest in a product, which is being introduced in a duopoly environment, is proposed. This framework is based on game theory applied to a duopoly market. A stochastic product life cycle characterized by a regime-switching approach and the consideration of two different game-theoretic models for the cases where competitors have perfect or imperfect information in the market are the main focal points of our study. Subsequently, different numerical examples comparing the results of NPV and optimal initial capacities from both game-theoretic models are presented. It is observed that the leader in the model with perfect information has an important advantage over its opponent because this company makes the first move to establish quantity to supply. Also, the leader in perfect information game has an advantage over the game with imperfect information since decisions with imperfect information have to be made simultaneously, and players need to balance all possible outcomes when making a choice. Consequently, in both models, one of the competitors obtains its maximum NPV when the other invests in the lowest level of capacity. Lastly, expansion and contraction costs play a critical role in the strategy of resource allocation as these costs are involved in capacity flexibility. Therefore, firms can adjust their production when product demand varies to maximize profits.</p>

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Section: Stackelberg's Model Of Duopolymentioning

confidence: 99%

Real options valuation with duopoly game-theoretic approach and regime switching

Diaz¹

2022

Preprint

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“…This paper postulates that the firm at the receiving area of a congested line has a leading opportunity, and the firm at the sending area has a follower position. When it is not clear if a firm locates in a sending area or a receiving area, PTDF(Power Transfer Distribution Factor) is a useful index to clear the vagueness [14,18,19 …”

Section: Stackelberg Equilibrium At Duopolymentioning

confidence: 99%

“…For example, the power injection in the receiving end of the congested line relieves congestion; on the other hand, the power in the supplying end intensifies congestion. This differential effect on congestion makes the firms behave differently in competition [14], where a certain firm plays the role of a leader, and the others play the role of followers. Based on this suggestion, the Stackelberg model is applied to analyze the competition in the electricity market with congestion.…”

Section: Introductionmentioning

confidence: 99%

Strategy Equilibrium in Stackelberg Model with Transmission Congestion in Electricity Market

Lee¹

2014

Journal of Electrical Engineering and Technology

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-Nash Cournot Equilibrium (NCE) has been widely used in a competitive electricity market to analyze generation firms' strategic production quantities. Congestion on a transmission network may lead to a mixed strategy NCE. Mixed strategy is complicated to understand, difficult to compute, and hard to implement in practical market. However, Stackelberg model based equilibrium does not have any mixed strategy, even under congestion in a transmission line. A guide to understanding mixed strategy equilibrium is given by analyzing a cycling phenomenon in the players' best choices. This paper connects the concept of leader-follower in Stackelberg model with relations between generation firms on both sides of the congested line. From the viewpoint of social welfare, the surplus analysis is presented for comparison between the NCE and the Stackelberg equilibrium (SE).

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Modified penalty function method for optimal social welfare of electric power supply chain with transmission constraints

Chen

Hsu

2014

International Journal of Electrical Power & Energy Systems

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Solving Mixed Strategy Nash-Cournot Equilibria under Generation and Transmission Constraints in Electricity Market

Cited by 3 publications

References 25 publications

Real options valuation with duopoly game-theoretic approach and regime switching

Real options valuation with duopoly game-theoretic approach and regime switching

Strategy Equilibrium in Stackelberg Model with Transmission Congestion in Electricity Market

Modified penalty function method for optimal social welfare of electric power supply chain with transmission constraints

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