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Game-theoretical, Strategic forward Contracting in the Electricity Market

Author

Listed:
  • Holmberg, Pär

    (Research Institute of Industrial Economics (IFN))

Abstract

Forward sales is a credible commitment to aggressive spot market bidding, and it mitigates producers’ market power in electricity markets. Still it can be profitable for a producer to make such a commitment if it results in a soft response from competitors in the spot market (strategies are substitutes). The optimal contracting level of a risk-neutral producer is determined by the extent to which strategies are substitutes and the slope of the residual demand in the forward market. Conditions under which strategies are substitutes are identified for a two-stage game with supply function competition and capacity constrained producers.

Suggested Citation

  • Holmberg, Pär, 2008. "Game-theoretical, Strategic forward Contracting in the Electricity Market," Working Paper Series 756, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:0756
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    Citations

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    Cited by:

    1. Miguel Vazquez, 2012. "Analysis of the strategic use of forward contracting in electricity markets," RSCAS Working Papers 2012/13, European University Institute.
    2. Holmberg, Pär, 2009. "Numerical calculation of an asymmetric supply function equilibrium with capacity constraints," European Journal of Operational Research, Elsevier, vol. 199(1), pages 285-295, November.
    3. Holmberg, Pär & Newbery, David, 2010. "The supply function equilibrium and its policy implications for wholesale electricity auctions," Utilities Policy, Elsevier, vol. 18(4), pages 209-226, December.

    More about this item

    Keywords

    Supply Function Equilibrium; Forward Market; Strategic Contracting; Arbitrage; Strategic Substitutes; Oligopoly; Electricity Market;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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