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A Stackelberg price leadership model with application to deregulated electricity markets

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4 Author(s)
Z. Yu ; Inst. for Interdisciplinary Eng. Studies, Purdue Univ., West Lafayette, IN, USA ; F. T. Sparrow ; T. L. Morin ; G. Nderitu

This paper presents a Stackelberg price leadership model for simulating deregulated electricity markets consisting of one or a few large producers and a larger number of fringe producers. It is assumed that the large producer(s) would adopt oligopoly strategy using their market power while the small producers would use Bertrand-like strategy. The model is a multi-objective profit maximization program. The multi-objectives are converted into the same number of partial Lagrangian functions with power production and supply as the control variables. A set of KKT conditions is then derived considering the game strategies of the producers. Test results show that the model successfully produces a total profit that is greater than that profit from a welfare maximization model but is less than that from a collusion model. Producers who adopt Cournot strategy are better off with higher profits as compared with marginal cost pricing

Published in:

Power Engineering Society Winter Meeting, 2000. IEEE  (Volume:3 )

Date of Conference:

23-27 Jan 2000