Vazquez, Miguel and Barquín, Julián (2009): A fundamental power price model with oligopolistic competition representation.
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Abstract
Most popular approaches for modeling electricity prices rely at present on microeconomics rationale. They aim to study the interaction between decisions of agents in the market, and usually represent the impact of uncertainty in such decisions in a simplified way. The usual methodology of microeconomics models is the study of the interaction between the profitmaximization problems faced by each of the firms. On the other hand, there is a growing literature that describes the power price dynamics from the financial standpoint, through the statement of a more or less complex stochastic process. However, this theoretical framework is based on the assumption of perfect competition, and therefore the stochastic process may not capture important features of price dynamics. In this paper, we suggest a mixed approach, in the sense that the price is thought of as the composition of a longterm component, where the strategic behavior is represented, and a shortterm source of uncertainty that agents cannot take into account when deciding their strategies. The complex distributional implications of the oligopolistic behavior of market players are then given by the longtermcomponent dynamics, whereas the shortterm component captures the uncertainty related to the operation of power systems. In addition, this modeling approach allows for a direct description of the longterm volatility of power markets, which is usually hard to estimate through statistical models.
Item Type:  MPRA Paper 

Original Title:  A fundamental power price model with oligopolistic competition representation 
Language:  English 
Keywords:  power markets; pricing models; market power; longterm/shortterm decomposition 
Subjects:  C  Mathematical and Quantitative Methods > C3  Multiple or Simultaneous Equation Models ; Multiple Variables > C32  TimeSeries Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models L  Industrial Organization > L1  Market Structure, Firm Strategy, and Market Performance > L13  Oligopoly and Other Imperfect Markets Q  Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4  Energy > Q40  General C  Mathematical and Quantitative Methods > C1  Econometric and Statistical Methods and Methodology: General > C15  Statistical Simulation Methods: General G  Financial Economics > G1  General Financial Markets > G13  Contingent Pricing ; Futures Pricing C  Mathematical and Quantitative Methods > C7  Game Theory and Bargaining Theory > C72  Noncooperative Games 
Item ID:  15629 
Depositing User:  Miguel Vázquez 
Date Deposited:  10. Jun 2009 06:12 
Last Modified:  12. Feb 2013 13:18 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/15629 
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