Skip to main content
SpringerLink
Log in

Strategic Pricing when Electricity is Storable

  • Published:
Journal of Regulatory Economics Aims and scope Submit manuscript

Abstract

In this paper, we develop a simplified oligopoly model where hydro generators engage in dynamic Bertrand competition. Each player uses a Markov strategy based on the state of water reservoirs at the beginning of each period. The replenishing of water reservoirs, which affects generators' productive capacity, is governed by a stochastic process. Also, a price cap, i.e. a maximum bid allowed, is imposed on the market. We develop valuable insights for regulatory policy in predominantly hydro based electricity markets, including the effects of price caps, the efficiency of dispatch under strategic behavior and the likelihood of collusion.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Borenstein, S., and J. Bushnell. 1999. “An Empirical Analysis of the Potential for Market Power in California's Electricity Market.” Journal of Industrial Economics 47(3), (September): 285–323.

    Google Scholar 

  • Borenstein, S., J. Bushnell, and C. Knittel. 1999. “Market Power in Electricity Markets: Beyond Concentration Measures.” Energy Journal 20(4): 65–88.

    Google Scholar 

  • Bushnell, J. 1998. Water and Power: Hydroelectric Resources in the Era of Competition in the Western U.S. POWER Working Paper PWP-056. University of California.

  • Green, R. J. 1999. “The Electricity Contract Market in England and Wales.” The Journal of Industrial Economics (March): 107–124.

  • Green, R. J., D. Newbery. 1992. “Competition in the British Electricity Spot Market.” Journal of Political Economy 100: 929–953.

    Google Scholar 

  • Inter-American Development Bank. 1999. Profiles of Power Sector Reform in Latin America and the Caribbean. (December).

  • Rudkevich, A., M. Duckworth, and R. Rosen. 1998. “Modeling Electricity Pricing in a Deregulated Generation Industry: The Potential for Oligopoly Pricing in a PoolCo.” The Energy Journal 19(3): 19–48.

    Google Scholar 

  • Scott, T. J, and G. Read. 1996. “Modeling Hydro Reservoir Operation in a Deregulated Electricity Market.” International Transactions on Operations Research 3(3/4): 243–254.

    Google Scholar 

  • Train, K. and A. Selting. 2000. “The Effect of Price on Residential Customer Choice in Competitive Retail Energy Markets: Evidence from Specific Markets to Date.” Edison Electric Institute Report.

  • Von der Fehr, N., D. Harbord. 1993. “Spot Market Competition in the UK Electricity Market.” The Economic Journal 103, (May): 531–546.

Download references

Author information

Authors and Affiliations

  1. Department of Systems Engineering, School of Engineering and Applied Science, Olsson Hall, University of Virginia, Charlottesville, VA, 22903-2442

    Alfredo Garcia

  2. The Brattle Group, 1133 20th Street NW, Washington, DC, 20036

    James D. Reitzes

  3. Department of Economics, University of Michigan, 238 Lorch Hall, Ann Arbor, MI, 48109

    Ennio Stacchetti

Authors
  1. Alfredo Garcia
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. James D. Reitzes
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Ennio Stacchetti
    View author publications

    You can also search for this author in PubMed Google Scholar

Rights and permissions

Reprints and permissions

About this article

Cite this article

Garcia, A., Reitzes, J.D. & Stacchetti, E. Strategic Pricing when Electricity is Storable. Journal of Regulatory Economics 20, 223–247 (2001). https://doi.org/10.1023/A:1011151409081

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1023/A:1011151409081

Keywords

Search

Navigation