Economic Effects of the Liberalization of the European Electricity Market – Simulation Results of a Game Theoretic Modelling Concept

Electricity market liberalization aims to boost competition at the level of each member state as well as within the European Union (EU). Therefore, observing the strategic behavior of the market players (e.g. related to net access, cooperation or refusal to collaborate, etc.) becomes crucial. There are different mathematical models for describing the behaviour of a competitive market. For the scope of this paper, the EU electricity market is modelled using a game theoretic model. The authors compare the strategic behaviour of the market players reflected by their market influences based on the Nash equilibrium theory among an environment of perfect competition. In the case of perfect competition, each agent acts as a price taker, equalizing prices and marginal costs in order to optimise profit. The paper further considers the (generalized and extended) Cournot model, at the Nash equilibrium, where electricity firms aim to maximize their profit and enlarge their market shares taking into consideration various relationships between the real market elasticities and assumptions about the behaviour of other players. The paper provides a comprehensive overview of issues triggered by the liberalization process of European electricity markets and argues that the extended Cournot model can be considered when analysing a transition process from an oligopolistic market towards the ideal case of a perfect competitive market. Kemfert, Barbu, Kalashnikov: Economic Impacts of the Liberalisation of the European Electricity Market