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Nash Equilibrium in a Pay-as-bid Electricity Market: Part 2 - Best Response of a Producer

Didier Aussel(aussel***at***univ-perp.fr)
Pascale Bendotti(pascale.bendotti***at***lip6.fr)
Miroslav Pistek(pistek***at***utia.cas.cz)

Abstract: We consider a multi-leader-common-follower model of a pay-as-bid electricity market in which the producers provide the regulator with either linear or quadratic bids. We prove that for a given producer only linear bids can maximise his profit. Such linear bids are referred as the ``best response'' of the given producer. They are obtained assuming the demand is known and some estimate of the bids of the other producers is available. Nevertheless we also show that whenever no best response exists, the optimal profit can be asymptotically attained by a sequence of quadratic bids converging to the so-called ``limiting best response''. An explicit formula for such a sequence is provided.

Keywords: electricity market; multi-leader-follower game; Nash equilibrium; best response

Category 1: Convex and Nonsmooth Optimization (Nonsmooth Optimization )

Category 2: Applications -- OR and Management Sciences (Finance and Economics )

Citation: submitted - 2015

Download: [PDF]

Entry Submitted: 01/25/2016
Entry Accepted: 01/25/2016
Entry Last Modified: 01/25/2016

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