On European Electricity Market Liberalization: A Game-Theoretic Approach

In this paper we deal with the European electricity market liberalization problem, formulated as a game with electricity producers as players, while the consumers’ electricity demand is exogenous. The producers maximize their profit by choosing how much electricity they will produce individually by means of electricity production available to them. The aim of the research presented in this paper is to investigate the differences between the resulting electricity prices with different scenarios: a market with one Stackelberg leading producer, a market with two Stackelberg leading producers being noncooperative among themselves, and a perfectly competitive market. In the case studies the games involving one, two, and eight European countries are played. In the scenarios dealt with in this paper the perfectly competitive market yields the lowest electricity prices for the consumers. However, we also discuss possible drawbacks of liberalization. Our research aims to help understanding the complex process of electricity market liberalization.