Strategic Behavior and Equilibrium in Experimental Oligopolistic Electricity Markets

Abstract

The method of experimental economics is applied to research of oligopolistic electricity markets. The design of experimental platform, principles of experimental economics and experimental design are introduced. The experiments are organized on base of the Cournot model of oligopolistic electricity markets. A set of experiments are conducted on the experimental oligopolistic markets with three generating companies (Gencos) and the experimental results are analyzed with strict statistics approaches. The results show that the market competition will converge to the results between perfect competition equilibrium and Nash equilibrium in oligopolistic electricity markets with asymmetric production cost functions and repeated play among the Gencos. The decision support tools of Gencos have significant influences on experimental results. The markets converge to static Cournot-Nash equilibrium when the bounded-rational subjects repeatedly play, equipped with the tools that can give best response strategies. The experimental method provides a complement to the theoretical research and computer simulation and has many merits in modeling realistic electricity markets.