Monopolistic competition in electricity networks with resistance losses

Abstract

We consider a pool type electricity market in which generators bid prices in a sealed bid form and are dispatched by an independent system operator (ISO). In our model, demand is inelastic and the ISO allocates production to minimize the system costs while considering the transmission constraints. In a departure from received literature, the model incorporates explicit description of the network details. The analysis shows that losses along transmission lines render the market imperfectly competitive. Indeed, competition among generators is qualitatively similar to the interaction among firms in amonopolistic competition setting.Alower bound formarket prices is derived and it is shown that the costumers’ cost of oligopolistic pricing is strictly positive. At a methodological level, we generalize standard oligopoly theory tools.