Open AccessMarket Power in Double Price Cap electricity Market
Author(s) -
Seyed Saeid Mohtavipour,
Amir Hossein Gholami
Publication year - 2016
Publication title -
bulletin de la société royale des sciences de liège
Language(s) - English
Resource type - Journals
ISSN - 1783-5720
DOI - 10.25518/0037-9565.5267
Subject(s) - bidding , collusion , context (archaeology) , microeconomics , electricity market , industrial organization , economics , constraint (computer aided design) , market power , punishment (psychology) , scarcity , portfolio , electricity , business , financial economics , monopoly , electrical engineering , engineering , mechanical engineering , paleontology , social psychology , psychology , biology
In this paper, we examine double price cap electricity market from the viewpoint of non-pivotal firms. Collusive scarcity is developed by abolishing the widespread assumption that non-pivotal firms have not enjoyed a strategic behaviour of capacity withholding. In the context of the infinitely repeated game paradigm, the firms are presented with reinforcement learning and punishment policy framework, in that they attempt to learn how to tune the slope of bidding decisions and when to declare a collusive fictitious binding capacity constraint. The resulting bidding decisions explain the rationale of collusion behind capacity withholding and show to what extent non-pivotal firms can maintain stable collusive outcomes with punishment policy framework. A simulation using the generation portfolio of the Iranian electricity industry sheds light on why non-pivotal firms are capable of capacity withholding and how they maintain their collusive behaviour by exerting punishment policy.