Price strategies in dynamic duopolistic markets with deregulated electricity supplies using mixed strategies

While effective competition can force service providers to seek economically efficient methods to reduce costs, the deregulated electricity supply industry still allows some generators to exercise market power at particular locations, thereby preventing the deregulated power market to be perfectly competitive. In this paper, we investigate the interdependence of pricing mechanisms and strategy behaviors of the suppliers. A multiperiod dynamic profit-maximizing problem is converted to a bimatrix game that is solved in the framework of mixed strategies. By this procedure, we have at least one Nash solution. Instead of considering only perfectly competitive price and monopoly price, we introduce other prices between these two to simulate the real market better. Numerical examples show that the new entrant that maximizes its profit will not choose the perfectly competitive price even as an entry price. D 2004 Published by Elsevier B.V.