Oligopolistic Generation Expansion: A Multi-leader Multi-follower approach
In this paper it is proposed a novel analysis of competitive generation expansion under imperfections such as indivisibility of projects, risk aversion and oligopolies investing strategically. Based on the game theory, the oligopoly is modeled as a group of leaders companies, with the first option to invest, facing potential new investors to enter the market. The approach can be seen as an extension of the Stackelberg game to a multi-leader case. A solution procedure is developed which combines equilibrium search algorithms for non-strategic and Nash in matrix games. An application example to a representation of the Chilean power system shows the viability of the methodology. The simulations suggest that the market power of the oligopoly depends on its ability to control the most profitable expansion technologies and the possibility that new investors decide to enter into the market. This kind of results can assist the analysis of imperfect-competitive generation expansion in real systems.
competitive generation expansion game theory pool capacity payments market design