A Simulation Analysis of Transmission - Constrained Oligopoly in the Wholesale Electricity Market

Exercise of market power by dominant generators is recognized as a serious issue in restructured wholesale electricity markets. Oligopolistic generators that participate in the electricity market on a nationwide scale could act strategically by taking into account the limited capacity of inter-regional transmission lines. In this paper, we consider a transmission-constrained Cournot model, using a mathematical program with equilibrium constraints (MPEC). We then present a simulation analysis of the Japanese wholesale electricity market, which is divided into nine regions linked by interconnection lines. Specifically, this paper examines how the divestiture of dominant players' power plants located in different regions will affect the Cournot equilibrium.