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Uniqueness of Market Equilibrium on a Network: A Peak-Load Pricing Approach

  • In this paper we analyze peak-load pricing in the presence of network constraints. In our setup, firms facing fluctuating demand decide on the size and location of production facilities. They make production decisions constrained by the invested capacities, taking into account that market prices reflect scarce transmission capacities. We state general conditions for existence and uniqueness of the market equilibrium and provide a characterization of equilibrium investment and production. The presented analysis covers the cases of perfect competition and monopoly - the case of strategic firms is approximated by a conjectural variations approach. Our result is a prerequisite for analyzing regulatory policy options with computational multilevel equilibrium models, since uniqueness of the equilibrium at lower levels is of key importance when solving these models. Thus, our paper contributes to an evolving strand of literature that analyzes regulatory policy based on computational multilevel equilibrium models and aims at taking into account individual objectives of various agents, among them not only generators and customers but also, e.g., the regulator deciding on network expansion.

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Metadaten
Author:Veronika Grimm, Lars Schewe, Martin Schmidt, Gregor Zöttl
DOI:https://doi.org/10.1016/j.ejor.2017.03.036
Parent Title (English):European Journal of Operational Research
Document Type:Article
Language:English
Date of Publication (online):2017/03/18
Year of first Publication:2017
Release Date:2016/10/20
Tag:Networks; Peak-Load Pricing; Pricing; Uniqueness
Volume:261
Issue:3
First Page:971
Last Page:983
Institutes:Friedrich-Alexander-Universität Erlangen-Nürnberg
Subprojects:B07
B08