sequential formation of coalitions in games with externalities and fixed payoff division this paper analyzes a sequential game of coalition formation when the division of the coalitional surplus is fixed and the payoffs are defined relative to the whole coalition structure gains from cooperation are represented by a valuation which maps coalition structures into payoff vectors i show that any core stable coalition structure can be attained as a stationary perfect equilibrium of the game if stationary perfect equilibria may fail to exist in general games a simple condition is provided under which they exist in symmetric games furthermore symmetric stationary perfect equilibria of symmetric games generate a coalition structure which is generically unique up to a permutation of the players a general method for the characterization of equilibria in symmetric games is proposed and applied to the formation of cartels in oligopolies and coalitions in symmetric majority games journal of economic literatureclassification numbers c78 c71 1996 academic press inc

optimal trade taxes for a large country with non atomistic firms abstract the conventional prescription for a country possessing market power in world markets is an import tariff or export tax typically a country will have a continuum of traders differentiated both by size and behavior optimal policy then involves a structure of trade taxes rather than a uniform tax or tariff with larger firms generally taxed at lower rates than smaller ones when policy is constrained to a uniform tax optimal policy depends both on the foreign demand or supply elasticity and the size distribution of firms the principles derived here are applied numerically to indonesia s exports of nutmeg

a dynamic real option based investment model for renewable energy portfolios this work proposes a dynamic model to devise the optimal risk averse investment policy in a portfolio of complementary renewable sources for a generation company in the brazilian power system the proposed method merges a static energy contracting model based on a hybrid robust and stochastic optimization approach with a mean reverting binomial lattice model for real option valuation the proposed merge extends previous works by providing support to risk averse investment decisions in complementary renewable sources dynamically distributed over time the most important results of the model are how much capacity to invest or build from each renewable source how much to sell from the energy portfolio in bilateral contracts and the optimal timing to invest unlike previous reported works our model takes into account three classes of uncertainties simultaneously renewable production of candidate sources and prices in the spot and contract markets a case study with realistic data from the brazilian power system is presented to illustrate the value of our model

collaborate or consolidate assessing the competitive effects of production joint ventures we analyze collaborations in which two firms facing external competition reorganize to form an input joint venture as an alternative to horizontal merger under standard regularity conditions the collaboration can lead to higher profits than a horizontal merger though the effect on prices quantities and welfare depends on the form of downstream competition in light of our results regarding profits we provide reasons why firms might still wish to merge imperfect information cost synergies and organizational asymmetries we further consider how our comparisons change with the managerial structure of the joint venture i e by delegation of input pricing jel l13 l23 l42

stochastic modeling of financial electricity contracts abstract we discuss the modeling of electricity contracts traded in many deregulated power markets these forward futures type contracts deliver either physically or financially electricity over a specified time period and is frequently referred to as swaps since they in effect represent an exchange of fixed for floating electricity price we propose to use the heath jarrow morton approach to model swap prices since the notion of a spot price is not easily defined in these markets for general stochastic dynamical models we connect the spot price the instantaneous delivery forward price and the swap price and analyze two different ways to apply the heath jarrow morton approach to swap pricing either one specifies a dynamics for the non existing instantaneous delivery forwards and derives the implied swap dynamics or one models directly on the swaps the former is shown to lead to quite complicated stochastic models for the swap price even when the forward dynamics is simple the latter has some theoretical problems due to a no arbitrage condition that has to be satisfied for swaps with overlapping delivery periods to overcome this problem a practical modeling approach is analyzed the market is supposed only to consist of non overlapping swaps and these are modelled directly a thorough empirical study is performed using data collected from nord pool our investigations demonstrate that it is possible to state reasonable models for the swap price dynamics which is analytically tractable for risk management and option pricing purposes however this is an area of further research

a direct mechanism characterization of sequential bargaining with one sided incomplete information we characterize the sequential equilibria of a class of infinite horizon bargaining games with one sided incomplete information when the seller the uninformed party makes all the offers we prove a folk theorem every incentive compatible individually rational direct bargaining mechanism is implementable by sequential equilibria introducing buyer counteroffers eliminates outcomes which are unfavorable to that party as the proportion of buyer offers increases the set of implementable mechanisms shrinks continuously when the proportion reaches one only the single outcome most favorable to the buyer remains thus depending on the offer structure sequentiality may or may not impose restrictions beyond static incentive compatibility

endogenous structures of association in oligopolies the formulation of associations of firms in an oligopoly with linear demand is analyzed as a two stage noncooperative game in the first stage firms form associations in order to decrease their costs and in the second stage they compete on the market examples of associations include r d joint ventures and groups of firms adopting common standards in equilibrium the associations formed exhibit two general features they are asymmetric and inefficient

genco s risk constrained hydrothermal scheduling this paper presents a stochastic midterm risk constrained hydrothermal scheduling algorithm in a generation company genco the objective of a genco is to maximize payoffs and minimize financial risks when scheduling its midterm generation of thermal cascaded hydro and pumped storage units the proposed schedule will be used by the genco for bidding purposes to the iso the optimization model is based on stochastic price based unit commitment the proposed genco solution may be used to schedule midterm fuel and natural water inflow resources for a few months to a year the proposed stochastic mixed integer programming solution considers random market prices for energy and ancillary services as well as the availability of natural water inflows and generators in monte carlo scenarios financial risks associated with uncertainties are considered by applying expected downside risks which are incorporated explicitly as constraints variable time steps are adopted to avoid the exponential growth in solution time and memory requirements when considering midterm constraints a single water to power conversion function is used instead of several curves for representing water head and discharge parameters piecewise linearized head dependant water to power conversion functions are used for computational efficiency illustrative examples examine gencos midterm generation schedules risk levels fuel and water usage and hourly generation dispatches for bidding in energy and ancillary services markets the paper shows that gencos could decrease their financial risks by adjusting expected payoffs

optimal economic dispatch and risk management of thermal power plants in deregulated markets this paper presents a methodology for the valuation optimization market margin and credit risk management of gas fired power plants and associated tolling contracts term structure models for the power and gas forward curves are employed to facilitate hedging and risk adjustment and for improved forecasting of short term prices the model for the power forward curve is capable of reproducing the important phenomena often observed in power markets including spot price spikes and spike clustering negative prices and the empirically observed volatility term structures of power and gas forward prices as well as the correlation term structure between these forward curves the method solves the stochastic dynamic optimization problem that arises from the inclusion of the various operational constraints of gas fired power plants including minimum uptime and downtime requirements ramp rate restrictions and costs variable output and efficiency rates and minimum generation levels the model involves the so

a spot forward model for electricity prices with regime shifts 2014 elsevier b v all rights reserved this is the authors manuscript preprint to the article

price based unit commitment with wind power utilization constraints this paper proposes an optimal bidding strategy for independent power producers ipps in the deregulated electricity market the ipps are assumed to be price takers whose objectives are to maximize their profits considering price and wind power output uncertainties while ensuring high wind power utilization the problem is formulated as a two stage stochastic price based unit commitment problem with chance constraints to ensure wind power utilization in our model the first stage decision includes unit commitment and quantity of electricity submitted to the day ahead market the second stage decision includes generation dispatch actual usage of wind power and amount of energy imbalance between the day ahead and real time markets the chance constraint is applied to ensure a certain percentage of wind power utilization so as to comply with renewable energy utilization regulations finally a sample average approximation saa approach is applied to solve the problem and the computational results are reported for the proposed saa algorithm showing the sensitivity of the total profit as the requirement of wind power utilization changes

bond pricing and the term structure of interest rates a new methodology for contingent claims valuation this paper presents a unifying theory for valuing contingent claims under a stochastic term structure of interest rates the methodology based on the equivalent martingale measure technique takes as given an initial forward rate curve and a family of potential stochastic processee for its subsequent movements a no arbitrage condition restricts this family of processes yielding valuation formulae for interest rate sensitive contingent claims which do not explicitly depend on the market prices of risk examples are provided to illustrate the key results in relation to the term structure of interest rates arbitrage pricing theory has two purposes the first is to price all zero coupon default free bonds of varying maturities from a finite number of economic fundamentals called state variables the second is to price all interest rate sensitive contingent claims taking as given the prices of the zero coupon bonds this paper presents a general theory and a unifying framework for understanding arbitrage pricing theory in this context of which all existing arbitrage pricing models are special cases in particular vasicek 1977 brennan and schwartz 1979 langetieg 1980 ball and torous 1983 ho and lee 1986 schaefer and schwartz 1987 and artzner and delbaen 1988 the primary contribution of this paper however is a new methodology for solving the second problem i e the pricing of interest rate sensitive contingent claims given the prices of all zero coupon bonds the methodology is new because i it imposes its stochastic structure directly on the evolution of the forward rate curve ii it does not require an inversion of the term structure to eliminate the market prices of risk from contingent claim values and iii it has a stochastic spot rate process with multiple stochastic factors influencing the term structure the model can be used to consistently price and hedge all contingent claims american or european on the term structure and it is derived from necessary and more importantly sufficient conditions for the absence of arbitrage the arbitrage pricing models of vasicek 1977 brennan and schwartz 1979 langetieg 1980 and artzner and delbaen 1988 all require an iformerly titled bond pricing and the term structure of interest rates a new methodology

optimal response of a power generator to energy agc and reserve pool based markets the electric power industry all over the world is undertaking major regulatory and operational changes the understanding of power supply as a public service is being replaced by the notion that competitive markets constitute a more appropriate framework to supply reliable and cheap electric energy to consumers as mandated by ferc orders 888 and 889 this paper considers simultaneously energy agc and reserve markets in a pool framework it provides a tool to enable a power generator to determine optimally its degree of involvement in each one of these markets a real world case study is analyzed and results are presented

foundations of dynamic monopoly and the coase conjecture subgame perfect equilibria are characterized for a market in which the seller quotes a price each period assume zero costs positive interest rate continuum of buyers and some technical conditions if buyers valuations are positive then equilibrium is unique buyers strategies are stationary and the price sequence is determinant along the equilibrium path but possibly randomized elsewhere otherwise a continuum of stationary equilibria can exist but at most one with analytic strategies coase s conjecture is verified for stationary strategies reducing the period length drives all prices to zero or the least valuation connections to bargaining models are described journal qf economic literature classification

representing the valuation of take or pay provisions in gas markets with limited liquidity long term contracting is the traditional governance mechanism to deal with the transaction costs associated with the specificity of gas industry assets long term contracts have been often used to allocate risks among players and to that end they often include take or pay provisions these clauses specify that buyers take the volume risk as they are obliged to pay for a minimum amount of gas consumption in exchange buyers pay a predefined price supposedly lower than the risk neutral expectation of short term gas prices in that view if the buyer is able to resell that gas in the short term the contract is an effective hedge against short term volatility otherwise the contract does not act as a hedge but it becomes a sunk cost the corresponding power producers behavior involves not only output decisions but also financial decisions to analyze that situation this paper develops a new quantitative methodology that allows comparing risk neutral valuations of gas and power markets decisions we test the model in a real size system and show the additional cost of the power system associated with a possible illiquidity of the short term gas market

imperfect competition and pareto improving strategic trade policy abstract this paper addresses the concern that strategic trade policy will inevitably invite retaliation by presenting examples in which tariffs and export taxes subsidies can improve the welfare of importing and exporting nations at the same time we argue that retaliation is less likely in such cases the conditions required for these results depend upon the relative sizes of the markets in the trading countries the number of firms in each and the shape of market demand and cost functions

incorporating fuel constraints and electricity spot prices into the stochastic unit commitment problem the electric power industry is going through deregulation as a result the load on the generating units of a utility is becoming increasingly unpredictable furthermore electric utilities may need to buy power or sell their production to a power pool that serves as a spot market for electricity these trading activities expose utilities to volatile electricity prices in this paper we present a stochastic model for the unit commitment that incorporates power trading into the picture our model also accounts for fuel constraints and prices that may vary with electricity prices and demand the resulting model is a mixed integer program that is solved using lagrangian relaxation and bender s decomposition using this solution approach we solve problems with 729 demand scenarios on a single processor to within 0 1 of the optimal solution in less than 10 minutes our numerical results indicate that significant savings can be achieved when the spot market is entered into the problem and when stochastic policy is adopted instead of a deterministic one

risk constrained generation asset arbitrage in power systems a competitive generating company genco can maximize its payoff by optimizing its generation assets this paper considers the genco s arbitrage problem using stochastic price based unit commitment while considering the associated risks the genco may consider arbitrage opportunities in purchases from qualifying facilities qfs as well as simultaneous trades with spot markets for energy ancillary services fuel and emission allowance the tradeoff between maximizing expected payoffs and minimizing risks due to market price uncertainties is modeled explicitly by including the expected downside risk as a constraint the downside risk is defined as the unfulfilled profit the monte carlo simulation is applied to generate scenarios and scenario reduction techniques are applied to reduce the number of scenarios while maintaining a good approximation of the exact solution the proposed case studies illustrate the significance of arbitrage in multi commodity markets and the importance of considering the uncertainty of market prices

reputational bargaining with minimal knowledge of rationality two players announce bargaining postures to which they may become committed and then bargain over the division of a surplus the share of the surplus that a player can guarantee herself under first order knowledge of rationality is determined as a function of her probability of becoming committed as is the bargaining posture that she must announce in order to guarantee herself this much this maxmin share of the surplus is large relative to the probability of becoming committed e g it equals 30 if the commitment probability is 1 in 10 and equals 13 if the commitment probability is 1 in 1000 and the corresponding bargaining posture simply demands this share plus compensation for any delay in reaching agreement

an ordinal optimization based bidding strategy for electric power suppliers in the daily energy market the deregulation and reconstruction of the electric power industry worldwide raises many challenging issues related to the economic and reliable operation of electric power systems traditional unit commitment or hydrothermal scheduling problems have been integrated with generation resource bidding but the development of optimization based bidding strategies is only at a very preliminary stage this paper presents a bidding strategy based on the theory of ordinal optimization that the ordinal comparisons of performance measures are robust with respect to noise and modeling error and the problems become much easier if the optimization goal is softened from asking for the best to good enough solution the basic idea is to use an approximate model that describes the influence of bidding strategies on the market clearing prices mcp a nominal bid curve is obtained by solving optimal power generation for a given set of mcps via lagrangian relaxation then n bids are generated by perturbing the nominal bid curve the ordinal optimization method is applied to isolate a good enough set s that contains some good bids with high probability by performing rough evaluation the best bid is then selected by solving full hydrothermal scheduling or unit commitment problems for each of the bids in s using ordinal optimization approach we are able to obtain a good enough bidding strategy with reasonable computational effort numerical results using historical mcps from the california market and a generation company with 10 units show that the ordinal optimization based method is efficient

scenario reduction for futures market trading in electricity markets to make informed decisions in futures markets of electric energy stochastic programming models are commonly used such models treat stochastic processes via a set of scenarios which are plausible realizations throughout the decision making horizon of the stochastic processes the number of scenarios needed to accurately represent the uncertainty involved is generally large which may render the associated stochastic programming problem intractable hence scenario reduction techniques are needed to trim down the number of scenarios while keeping most of the stochastic information embedded in such scenarios this paper proposes a novel scenario reduction procedure that advantageously compares with existing ones for electricity market problems tackled via two stage stochastic programming

stochastic valuation of energy storage in wholesale power markets abstract energy storage systems are well poised to mitigate uncertainties of renewable generation outputs grid scale energy storage projects are major investments which call for rigorous valuation and risk analysis this paper provides a stochastic energy storage valuation framework in wholesale power markets which considers all key revenue streams simultaneously as part of this framework an operational optimization model is developed to determine the energy storage system s optimal dispatch sequences a future curve model is built to capture the volatilities of electricity prices in addition a frequency regulation service price forecasting model is developed simulation results with a realistic battery storage system reveal that the majority of the market revenues comes from frequency regulation services simulation results also show that both round trip efficiency and power to energy ratio are crucial to the cost effectiveness of energy storage systems

strategic groups and rent dissipation we consider a rent seeking contest in which players can form strategic groups before expending their outlays we examine the profitability of endogenous group formation and the effect of such group formation on rent dissipation we show the following when just one strategic group is formed in equilibrium group formation is beneficial both to the group members and to the nonmembers and rent dissipation is smaller than with usual individual rent seeking however when more than two strategic groups are formed in equilibrium group formation is never profitable to any players and rent dissipation is greater than with individual rent seeking jel

monotonicity and rationalizability in a large first price auction this paper proves that the monotonicity of bidding strategies together with the rationality of bidders implies that the winning bid in a first price auction converges to the competitive equilibrium price as the number of bidders increases wilson 1977 instead of analysing the symmetric nash equilibrium we examine rationalizable strategies bernheim 1984 pearce 1984 among the set of monotonic bidding strategies to prove that any monotonic rationalizable bidding strategy must be within a small neighbourhood of the truthful valuation of the object conditioned on the signal received by the bidder we obtain an information aggregation result similar to that of wilson 1977 while dispensing with almost all symmetric assumptions and using a milder solution concept than the nash equilibrium in particular if every bidder is ex ante identical then any rationalizable bidding strategy must be within a small neighbourhood of the symmetric nash equilibrium in a symmetric first price auction the symmetry of outcomes is implied rather than assumed copyright 2005 wiley blackwell

risk constrained ftr bidding strategy in transmission markets in electricity markets financial transmission right is an important instrument for hedging congestion charges there are two types of financial transmission rights point to point right ftr and flow based right fgr this paper proposes a risk constrained ftr bidding strategy in transmission auction markets based on the forecasted lmp differences between sink and source points of certain ftrs bidders try to maximize their expected payoffs by taking into account the associated risks supposing the forecasted distribution of lmp differences and bidders risk preferences are known to respective bidders the ftr bidding problem is modeled as a bilevel optimization with the upper subproblem representing bidders and the lower subproblem representing the solution to the iso s ftr market clearing problem for maximizing the revenues collected from the ftr auction the bilevel optimization problem is solved by developing the sensitivity of a bidder s expected utility with respect to its bidding strategy a three bus system with four bidders is considered for illustrating the proposed method the numerical results discuss the distinction between ftr obligation and ftr option bidding strategies the results further demonstrate the impact of contingency constraints forecasted lmp differences and bidders preferred risk levels on ftr bidding strategies

bidding strategy of virtual power plant for participating in energy and spinning reserve markets part i problem formulation this paper addresses the bidding problem faced by a virtual power plant vpp in a joint market of energy and spinning reserve service the proposed bidding strategy is a non equilibrium model based on the deterministic price based unit commitment pbuc which takes the supply demand balancing constraint and security constraints of vpp itself into account the presented model creates a single operating profile from a composite of the parameters characterizing each distributed energy resources der which is a component of vpp and incorporates network constraints into its description of the capabilities of the portfolio the presented model is a nonlinear mixed integer programming with inter temporal constraints and solved by genetic algorithm ga

strategic alliances a substitute for strategic trade policy abstract in this paper loose competition policy towards strategic alliances is examined as an alternative to strategic trade policy alliances are assumed to design a strategic contract which changes incentives in the output market permitting strategic alliances and using strategic trade policy yield exactly the same outcome if the good is not consumed domestically and all firms of a country form a single alliance the performance of the policy options in a more general setting depends on a number of interacting factors including i the share of domestic consumption ii the nature of product market competition iii the initial number of firms in the industry and iv the feasibility of international alliances irrespective of the nature of product market competition the alliance solution performs particularly well for low to medium shares of domestic consumption and if international alliances are feasible in small number oligopolies

rationalizable strategic behavior the notion of equilibrium proposed by nash 19 has come to play a dominant role in economic applications of noncooperative games while analyses of nash equilibria have unquestionably contributed to our understanding of economic behavior it would be unreasonably optimistic to maintain that nash solved the problem of noncooperative strategic choice there is a small literature beginning with ellsberg 6 and a much larger oral tradition which argues that nash behavior is neither a necessary consequence of rationality nor a reasonable empirical proposition in this paper i take the view that although there may be various reasons why an agent might select a nash strategy the notion of an equilibrium has little intrinsic appeal within a strategic context when an agent reaches a decision in ignorance of the strategies adopted by other players rationality consists of making a choice which is justifiable by an internally consistent system of beliefs rather than one which is optimal post hoc this point of view is not original indeed most serious justifications of the nash hypothesis embrace such an approach arguing that agents will expect the game to yield a nash outcome and consequently will choose their equilibrium strategies nevertheless when we think in terms of maximizing utility subject to expectations rather than realizations it becomes clear that the nash hypothesis far from being a consequence of rationality arises from certain restrictions on agents expectations which may or may not be plausible depending upon the game being played we are then quite naturally led to ask are there any restrictions of individuals expectations and hence choices which are required by rationality alone rather than by subjective plausibility this paper is concerned with defining justifying characterizing and refining a criterion for rational strategic choice which i label rationalizability

an empirical comparison of alternate regime switching models for electricity spot prices one of the most profound features of electricity spot prices are the price spikes markov regime switching mrs models seem to be a natural candidate for modeling this spiky behavior however in the studies published so far the goodness of fit of the proposed models has not been a major focus while most of the models were elegant their fit to empirical data has either been not examined thoroughly or the signs of a bad fit ignored with this paper we want to fill the gap we calibrate and test a range of mrs models in an attempt to find parsimonious specifications that not only address the main characteristics of electricity prices but are statistically sound as well we find that the most universal and robust structure is that of an independent spike 3 regime model with heteroscedastic diffusion type base regime dynamics and shifted spike regime distributions

expected value and chance constrained stochastic unit commitment ensuring wind power utilization this paper proposes an expected value and chance constrained stochastic optimization approach for the unit commitment problem with uncertain wind power output in the model the utilization of wind power can be adjusted by changing the utilization rate in the proposed expected value constraint meanwhile the chance constraint is used to restrict the probability of load imbalance then a sample average approximation saa method is used to transform the objective function the expected value constraint and the chance constraint into sample average reformulations furthermore a combined saa framework that considers both the expected value and the chance constraints is proposed to construct statistical upper and lower bounds for the optimization problem finally the performance of the proposed algorithm with different utilization rates and different risk levels is tested for a six bus system a revised ieee 118 bus system is also studied to show the scalability of the proposed model and algorithm

rationalizable strategic behavior and the problem of perfection this paper explores the fundamental problem of what can be inferred about the outcome of a noncooperative game from the rationality of the players and from the information they possess the answer is summarized in a solution concept called rationalizability strategy profiles that are rationalizable are not always nash equilibria conversely the information in an extensive form game often allows certain unreasonable nash equilibria to be excluded from the set of rationalizable profiles a stronger form of rationalizability is appropriate if players are known to be not merely rational but also cautious what constitutes rational behavior in a noncooperative strategic situation this paper explores the issue in the context of a wide class of finite noncooperative games in extensive form the traditional answer relies heavily upon the idea of nash equilibrium nash 17 the position developed here however is that as a criterion for judging a profile of strategies to be reasonable choices for players in a game the nash equilibrium property is neither necessary nor sufficient some nash equilibria are intuitively unreasonable and not all reasonable strategy profiles are nash equilibria the fact that a nash equilibrium can be intuitively unattractive is well known the equilibrium may be imperfect introduced into the literature by selten 20 the idea of imperfect equilibria has prompted game theorists to search for a narrower definition of equilibrium while this research some of which will be discussed here has been extremely instructive it remains inconclusive theorists often agree about what should happen in particular games but to capture this intuition in a general solution concept has proved to be very difficult if this paper is successful it should make some progress in that direction the other side of the coin has received less scrutiny can all non nash profiles really be excluded on logical grounds i believe not the standard justifications for considering only nash profiles are circular in nature or make gratuitous assumptions about players decision criteria or beliefs the following discussion of these points is extremely brief due to space constraints more detailed arguments may be found in pearce 18

alternating offer bargaining with two sided incomplete information i study alternating offer bargaining games with two sided incomplete information about the players discount rates for both perfect bayesian equilibrium and a rationalizability style notion i characterize the set of expected payoffs which may arise in the game i also construct bounds on agreements that may be made the set of expected payoffs is easy to compute and incorporate into applied models my main result is a full characterization of the set of perfect bayesian equilibrium payoffs for games in which the distribution over the players discount rates is of wide support yet is in a weak sense close to a point mass distribution i prove a lopsided convergence result each player cannot gain from a slight chance that she is a strong type but the player can suffer greatly if there is a slight chance that she is a weak type

innovation and cooperation implications for competition and antitrust n k robel laureate robert solow and his colleagues on mit s industrial productivity commission recently noted dertouzos lester and solow 1989 p 7 undeveloped cooperative relationships between individuals and between organizations stand out in our industry studies as obstacles to technological innovation and the improvement of industrial performance and later p 105 that interfirm cooperation in the u s has often though not always been inhibited by government antitrust regulation these striking conclusions warrant further exploration unfortunately industrial organization textbooks still discuss horizontal cooperation and competition almost exclusively in terms of standard cartel theory on the other hand vertical cooperation contracting is viewed differently and some textbooks provide treatments of supplier buyer relationships in which cooperation is viewed as enhancing efficiency both in the textbooks and in policy discussion among economists cooperation among competitors is highly suspect being perhaps the last bastion of what was once referred to as the inhospitality tradition in antitrust as a result very little literature addresses how cooperation among competitors can promote competition notwithstanding that cooperation among competitors may sometimes be essential if innovating firms are to compete in today s increasingly global markets imai and baba 1989 such cooperation is already important in japan and in europe 1

self scheduling of large consumers with second order stochastic dominance constraints this paper develops a decision making framework for mid term scheduling problems of the large industrial consumers the proposed approach is based upon the recently introduced class of stochastic programming problems established by the concept of second order stochastic dominance ssd in this paper it is assumed that the electricity price and the rate of availability unavailability of the generating unit forced outage rate are the sources of uncertainty in the decision making problem in the developed ssd constrained stochastic programming problem the consumer risk is managed by minimization of the pool procurement as the objective function and economic issues e g cost minimization are considered in the sd constraint furthermore while most approaches optimize the cost subject to an assumed demand profile our method enforces the electricity consumption to follow an optimum profile for mid term time scheduling i e three months 12 weeks so that the total production will remain constant simulation results for a typical cement factory as an industrial consumer and comparison to a mean risk approach with cvar risk measure revealed the interesting results and benefits of the proposed approach

deviations dynamics and equilibrium refinements existing equilibrium refinements rule out nash equilibria susceptible to deviations we propose a framework for considering not only equilibria impervious to deviations but also equilibria likely to recur in the long run because they are repeatedly deviated to we explore which equilibria are recurrent with respect to the deviations underlying some existing signaling refinements we show that the set of recurrent equilibria based on cho and kreps s 1987 intuitive criterion is equivalent to their solution concept but that applying our framework to existing cheap talk refinements make those solution concepts more realistic and guarantee existence where their current formulations do not journal of economic literatureclassification numbers b49 c72 c73

strong formulations for multistage stochastic self scheduling unit commitment with the increasing penetration of renewable energy into the power grid system the volatility of real time electricity prices increases significantly this brings challenges for independent power producers to provide optimal bidding strategies the traditional approaches of only attending the day ahead market might not be profitable enough without taking advantage of real time price volatility in this paper we study the optimal bidding strategies for the independent power producers utilizing self scheduling strategies to participate in the real time market considering real time electricity price volatility with the objective of maximizing the total expected profit considering the correlations of renewable energy generation outputs among different time periods the correlations of real time prices are captured in our modeling framework in which we explore a multistage stochastic scenario tree to formulate the price uncertainties accordingly the derived multistage stochastic self scheduling unit com

hedging local volume risk using forward markets nordic case abstract with focus on the nordic electricity market this paper develops hedging strategies for an electricity distributor who manages price and volume risk from fixed price agreements on stochastic electricity load whereas the distributor trades in the spot market at area prices the financial contracts used for hedging are settled against the system price area and system prices are correlated with electricity load as are price differences in practice however this is often disregarded here we develop a joint model for the area price the system price and the load accounting for correlations and we suggest various strategies for hedging in the presence of local volume risk we benchmark against a strategy that ignores correlation and hedges at expected load as is common practice in the industry using data from 2013 and 2014 for two danish bidding areas we show that our best hedging strategy reduces gross loss by 5 8 and 13 6 and increases gross profit by 3 8 and 9 5 respectively although this is partly due to the inclusion of correlation we show that performance improvement is mainly driven by the choice of risk measure

risk assessment in energy trading this paper provides a state of the art summary of risk assessment in energy trading techniques from financial engineering are needed by electric energy companies to manage price risk these tools are needed by suppliers distributors and traders in a competitive electric power marketplace tools that have been adapted to the specific environment of the electric power system include portfolio analysis and hedging instruments this paper provides a comprehensive critical literature survey of what has been applied to date in the power markets and which areas continue to need additional research one example market scenario is used throughout the paper to demonstrate the usefulness of the risk assessment methods

economic impact of electricity market price forecasting errors a demand side analysis several techniques have been proposed in the literature to forecast electricity market prices and improve forecast accuracy however no studies have been reported examining the economic impact of price forecast inaccuracies on forecast users therefore in this paper the application of electricity market price forecasts to short term operation scheduling of two typical and inherently different industrial loads is examined and the associated economic impact is analyzed using electricity market price forecasts as the expected next day electricity prices optimal operating schedules and the associated costs are determined for each load these costs are compared with those of a perfect price forecast scenario in which actual prices are used to determine the operating schedules numerical results and discussions are provided based on price forecasts with different error characteristics

a space time random field model for electricity forward prices abstract stochastic models for forward electricity prices are of great relevance nowadays given the major structural changes in the market due to the increase of renewable energy in the production mix in this study we derive a spatio temporal dynamical model based on the heath jarrow morton hjm approach under the musiela parametrization which ensures an arbitrage free model for electricity forward prices the model is fitted to a unique data set of historical price forward curves as a particular feature of the model we disentangle the temporal from spatial maturity effects on the dynamics of forward prices and shed light on the statistical properties of risk premia of the noise volatility term structure and of the spatio temporal noise correlation structures we find that the short term risk premia oscillates around zero but becomes negative in the long run we identify the samuelson effect in the volatility term structure and volatility bumps explained by market fundamentals furthermore we find evidence for coloured noise and correlated residuals which we model by a hilbert space valued normal inverse gaussian levy process with a suitable covariance functional

selective hedging in hydro based electricity companies abstract we analyze risk management trends in electricity commodity markets using the production and transaction data and written hedging policies of 12 norwegian hydropower companies the scope of our analysis is the hedging of physical electricity production using the power derivatives available at nasdaq omx commodities in their hedging policy these companies either use a cashflow at risk c far approach or a hedge ratio approach or follow no explicitly stated approach we find that the derivative cashflows constitute substantial profits for these companies furthermore hedging contributes to reducing the c far for 10 of the companies these findings are surprising considering that we expect hedging to yield zero expected profit and to smooth the earnings overall our findings reveal that a practice of incorporating market views in hedging decisions is widespread in the sample companies as both sanctioned in their written hedging policy and as indicated by the substantial hedging profits

a reputation refinement without equilibrium the economic literature concerning agents reputations has grown steadily since the seminal work of kreps milgrom roberts and wilson 2 early work focused on how incomplete information leads to equilibria that are vastly different but more intuitive than those possible in the complete information game recently however game theorists have been studying how incomplete information might refine the set of equilibria 3 one important class of games is that in which a single long run agent plays a simultaneous move stage game with a sequence of opponents each of whom plays only once yet observes all previous play fudenberg and levine 1989 study the reputation of the long run player in this type of game they argue that the most reasonable equilibrium is the one which the long run player most prefers their intuition is sustained when one perturbs the game with the stackelberg strategy fudenberg and levine show that in the perturbed game the equilibrium payoffs of the long run player are bounded below by a number that converges to the stackelberg payoff

electricity forward curves with thin granularity theory and empirical evidence in the hourly epexspot market we propose a constructive definition of electricity forward price curve with cross sectional timescales featuring hourly frequency on the curve is jointly consistent with both risk neutral market information represented by baseload and peakload futures quotes and historical market information as mirrored by periodical patterns exhibited by the time series of day ahead prices from a methodological standpoint we combine nonparametric filtering with monotone convex interpolation such that the resulting forward curve is pathwise smooth and monotonic cross sectionally stable and time local from an empirical standpoint we exhibit these features in the context of epex spot and eex derivative markets we perform a backtesting analysis to assess the relative quality of our forward curve estimate compared to the benchmark market model of benth koekebakker and ollmar 2007

reputation and equilibrium selection in games with a patient player a single long run player plays a simultaneous move stage game against a sequence of opponents who play only once but observe all previous play let the stackelberg strategy be the pure strategy to which the long run player would most like to commit himself if there is positive prior probability that the long run player will always play the stackelberg strategy then his payoff in any nash equilibrium exceeds a bound that converges to the stackelberg payoff as his discount factor approaches one when the stage game is not simultaneous move this result must be modified to account for the possibility that distinct strategies of the long run player are observationally equivalent

stationarity rationalizability and bargaining strategies for the seller and the buyer which are weakly stationary we demonstrate that any initial offer from the seller induced by a strategy rationalized by a weakly stationary acceptance rule for the buyer must entail the coase property our result does not presume the selection of a particular equilibrium and follows directly from the weak stationarity assumption of the buyer s acceptance rule and the rational behaviour of the players

strategic bidding under uncertainty a binary expansion approach this work presents a binary expansion be solution approach to the problem of strategic bidding under uncertainty in short term electricity markets the be scheme is used to transform the products of variables in the nonlinear bidding problem into a mixed integer linear programming formulation which can be solved by commercially available computational systems the be scheme is applicable to pure price pure quantity or joint price quantity bidding models it is also possible to represent transmission networks uncertainties scenarios for price quantity plant availability and load financial instruments capacity reinforcement decisions and unit commitment the application of the methodology is illustrated in case studies with configurations derived from the 80 gw brazilian system

constructing forward price curves in electricity markets we present and analyze a method for constructing approximated high resolution forward price curves in electricity markets because a limited number of forward or futures contracts are traded in the market only a limited picture of the theoretical continuous forward price curve is available to the analyst our method combines the information contained in observed bid and ask prices with information from the forecasts generated by bottom up models as an example we use information concerning the shape of the seasonal variation from a bottom up model to improve the forward price curve quoted on the nordic power exchange

price maker self scheduling in a pool based electricity market a mixed integer lp approach this paper addresses the self scheduling problem faced by a price maker to achieve maximum profit in a pool based electricity market an exact and computationally efficient mixed integer linear programming milp formulation of this problem is presented this formulation models precisely the price maker capability of altering market clearing prices to its own benefits through price quota curves no assumptions are made on the characteristics of the pool and its agents a realistic case study is presented and the results obtained are analyzed in detail

stochastic multiobjective market clearing of joint energy and reserves auctions ensuring power system security in this paper a stochastic multiobjective framework is proposed for day ahead joint market clearing the proposed multiobjective framework can concurrently optimize competing objective functions including augmented generation offer cost and security indices overload index voltage drop index and voltage stability margin besides system uncertainties including generating units and branches contingencies and load uncertainty are explicitly considered in the stochastic market clearing scheme the solution methodology consists of two stages which firstly employs roulette wheel mechanism and monte carlo simulation mcs for random adaptive 24 h scenario generation wherein the stochastic multiobjective market clearing procedure is converted into its respective deterministic equivalents scenarios in the second stage for each deterministic scenario a multiobjective mathematical programming mmp formulation based on the epsiv constrained approach is implemented for provision of spinning reserve sr and nonspinning reserve nsr as well as energy the mmp formulation of the market clearing process is optimized while meeting ac power flow constraints and expected interruption cost eic the ieee 24 bus reliability test system rts 24 bus is used to demonstrate the performance of the proposed method

scenario analysis of the new energy policy for taiwan s electricity sector until 2025 for this study we constructed the following three case scenarios based on the taiwanese government s energy policy a normal scenario the 2008 sustainable energy policy convention scenario and the 2011 new energy policy scenario we then employed a long term generation expansion planning gep optimization model to compare the three case scenarios energy mix for power generation for the next a15 years to further explore their possible impact on the electricity sector the results provide a reference for forming future energy policies and developing strategic responses

strategic alliances as stackelberg cartels concept and equilibrium alliance structure abstract this paper analyzes incentives of oligopolistic firms to form strategic alliances and the effects of the endogenously derived alliance structure on product market competition a three stage game is considered in the first stage firms decide about forming strategic alliances in the second stage each alliance designs a strategic contract and in the third stage alliance members and outsiders compete in the product market it is shown how contractual terms about transfer prices and profit sharing in a production joint venture for an intermediate product may serve as an appropriate commitment device profits of alliance members and outsiders under different alliance structures are then determined based on this profit structure the alliance formation process is analyzed in a linear cournot oligopoly with at most five firms only one alliance forms and industry output is reduced with more than five firms an alliance structure with at least two alliances results if an equilibrium of the alliance formation game exists and in this case competition is enhanced

risk constrained bidding strategy with stochastic unit commitment this paper develops optimal bidding strategies based on hourly unit commitment in a generation company genco that participates in energy and ancillary services markets the price based unit commitment problem with uncertain market prices is modeled as a stochastic mixed integer linear program the market price uncertainty is modeled using the scenario approach monte carlo simulation is applied to generate scenarios scenario reduction techniques are applied to reduce the size of the stochastic price based unit commitment problem and postprocessing is applied based on marginal cost of committed units to refine bidding curves the financial risk associated with market price uncertainty is modeled using expected downside risk which is incorporated explicitly as a constraint in the problem accordingly the proposed method provides a closed loop solution to devising specific strategies for risk based bidding in a genco illustrative examples show the impact of market price uncertainty on genco s hourly commitment schedule and discuss the way gencos could decrease financial risks by managing expected payoffs

a multistage model of bargaining this paper presents a simple multistage model of bargaining wherein a seller makes an offer that can be either accepted or refused if rejected the process continues how the seller s ability to make commitments affects bargaining outcomes is analysed by comparing the commitment equilibria to those arising when commitment is impossible the effects of increasing uncertainty about preferences and varying the length of the bargaining horizon are analysed the ways in which the bargaining environment can be changed to improve outcomes are discussed

linear complementarity models of nash cournot competition in bilateral and poolco power markets two cournot models of imperfect competition among electricity producers are formulated as mixed linear complementarity problems lcps and a simple example is presented to illustrate their application the two models simulate bilateral markets the models include a congestion pricing scheme for transmission but other transmission pricing approaches can also be represented in this framework the two models differ from each other in that one has no arbitrage between nodes of the network while in the other model arbitragers erase any noncost based differences in price the latter bilateral model turns out to be equivalent to a cournot model of a poolco the models differ from other cournot market models in that they include both of kirchhoff s laws via a dc approximation can include arbitragers possess unique solutions and are readily solved by efficient lcp algorithms the key assumption that permits their formulation as lcps is that each producer naively assumes that its output will not affect transmission prices

multimarket optimal bidding for a power producer this paper considers a profit maximizing thermal producer that participates in a sequence of spot markets namely day ahead automatic generation control agc and balancing markets the producer behaves as a price taker in both the day ahead market and the agc market but as a potential price maker in the volatile balancing market the paper provides a stochastic programming methodology to determine the optimal bidding strategies for the day ahead market uncertainty sources include prices for the day ahead and agc markets and balancing market linear price variations with the production of the thermal producer results from a realistic case study are reported and analyzed conclusions are duly drawn

optimal response of a thermal unit to an electricity spot market this paper addresses the optimal response of a thermal unit to an electricity spot market the objective is to maximize the unit profit from selling both energy and spinning reserve in the spot market the paper proposes a 0 1 mixed integer linear programming approach that allows a rigorous modeling of i nonconvex and nondifferentiable operating costs ii exponential start up costs iii available spinning reserve taking into account ramp rate restrictions and iv minimum up and down time constraints this approach overcomes the modeling limitations of dynamic programming approaches and is computationally efficient results from realistic case studies are reported

strips of hourly power options approximate hedging using average based forward contracts we study approximate hedging strategies for a contingent claim consisting of a strip of independent hourly power options the payoff of the contingent claim is a sum of the contributing hourly pa