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Time-of-use pricing of electricity in monopoly and oligopoly

Author

Listed:
  • Nidhi Kaikar

    (Ambedkar University Delhi (AUD))

  • Goutam Dutta

    (Indian Institute of Management)

  • Debamanyu Das

    (University of Massachusetts Amherst)

  • Subhashree Banerjee

    (Indira Gandhi Institute of Developmental Research)

Abstract

This paper discusses the efficiency gains for time-of-use pricing over flat-rate pricing in the electricity sector. The electricity market may be characterised by a monopoly in some cases, where a single firm continues to enjoy market power, or an oligopoly, where two or more firms compete against one another by strategic interaction. This study establishes the feasibility condition for efficiency gains to arise from time-of-use pricing in a monopolistic set up using constrained optimization. In an oligopolistic set-up, the strategic interaction between producers depends on the level of demand. In case of high demand, the producers compete on the basis of output they will produce, resulting in a Cournot-type competition. On the other hand, in case of low demand, an oligopolistic structure may break with only the most efficient firm operating, or results in the emergence of leader firms and follower firms, i.e. the Stackleberg model of oligopoly. The strategic behaviour of firms in a duopoly, generalizable to n firms, is modelled in this study using constrained optimization.

Suggested Citation

  • Nidhi Kaikar & Goutam Dutta & Debamanyu Das & Subhashree Banerjee, 2021. "Time-of-use pricing of electricity in monopoly and oligopoly," OPSEARCH, Springer;Operational Research Society of India, vol. 58(1), pages 1-28, March.
    • Handle: RePEc:spr:opsear:v:58:y:2021:i:1:d:10.1007_s12597-020-00465-6
    DOI: 10.1007/s12597-020-00465-6
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    References listed on IDEAS

    as
    1. Severin Borenstein & James Bushnell & Christopher R. Knittel, 1999. "Market Power in Electricity Markets: Beyond Concentration Measures," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 65-88.
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    Cited by:

    1. Nidhi Kaicker & Goutam Dutta & Akashdeep Mishra, 2022. "Time-of-use pricing in the electricity markets: mathematical modelling using non-linear market demand," OPSEARCH, Springer;Operational Research Society of India, vol. 59(3), pages 1178-1213, September.

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