Eur. Phys. J. B 50, 153-160 (2006)
https://doi.org/10.1140/epjb/e2006-00122-1

Micro-economic analysis of the physical constrained markets: game theory application to competitive electricity markets^*

¹ Politecnico di Torino, Department of Electrical Engineering, Corso Duca degli Abruzzi 24, 10129 Torino, Italy
² CERIS, Institute for Economic Research on Firms and Growth, CNR, National Research Council, Via Real Collegio, 30-10024 Moncalieri (TO), Italy

Corresponding authors: ^a ettore.bompard@polito.it - ^b e.ragazzi@ceris.cnr.it

Received: 27 October 2005
Revised: 28 November 2005
Published online: 12 April 2006

Abstract

Competition has been introduced in the electricity markets with the goal of reducing prices and improving efficiency. The basic idea which stays behind this choice is that, in competitive markets, a greater quantity of the good is exchanged at a lower price, leading to higher market efficiency. Electricity markets are pretty different from other commodities mainly due to the physical constraints related to the network structure that may impact the market performance. The network structure of the system on which the economic transactions need to be undertaken poses strict physical and operational constraints. Strategic interactions among producers that game the market with the objective of maximizing their producer surplus must be taken into account when modeling competitive electricity markets. The physical constraints, specific of the electricity markets, provide additional opportunity of gaming to the market players. Game theory provides a tool to model such a context. This paper discussed the application of game theory to physical constrained electricity markets with the goal of providing tools for assessing the market performance and pinpointing the critical network constraints that may impact the market efficiency. The basic models of game theory specifically designed to represent the electricity markets will be presented. IEEE30 bus test system of the constrained electricity market will be discussed to show the network impacts on the market performances in presence of strategic bidding behavior of the producers.