Multicommodity Equilibrium Models: Accounting for Demand-Side Linkages

Several of the models previously introduced in this book have focused on the market for a single commodity with a single price, such as power at a particular location in a particular hour. However, many of this book’s models instead considered several markets simultaneously, recognizing that linkages among them imply that equilibrium prices in one market cannot be calculated without considering how they affect, and are affected by, prices in other markets. In the earlier chapters, linkages among markets were mainly through the supply-side, in which the cost of providing commodity in one market depends in part on prices in other markets. For instance, a power generator with only a small amount of capacity with low running costs might experience a rise in its marginal cost of serving one part of the network if it also sells a lot of power elsewhere, thereby exhausting its cheap capacity. The purpose of this chapter is to introduce the modeling of multiple energy markets in which it is instead the behavior of consumers that links the markets. In particular, the amount that final consumers buy of one commodity affects how much they are willing to pay for other commodities.