Representing the effects of oligopolistic competition on risk-neutral prices in power markets

Vazquez, Miguel and Barquín, Julián (2009): Representing the effects of oligopolistic competition on risk-neutral prices in power markets.

Abstract

Forward transactions are becoming increasingly important in most of electricity markets. In this view, this paper develops a methodology able to capture the complexities of power markets and incorporate them into the framework of risk-neutral probabilities. This is done by the statement of a model that split up the power price dynamics into two different components: on the one hand, a component aimed at representing costs and market power, which will be based on a static, non-cooperative game; on the other,a component representing short-term deviations from the static model.

• Item Type: MPRA Paper
• Language: English
• Keywords: power markets; pricing models; market power; long-term/short-term decomposition
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series 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

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