Generation strategies for gaming transmission constraints: will the deregulated electric power market be an oligopoly?

Constrained transmission lines are known to be able to economically isolate submarkets from the competition of players located elsewhere on the networ k. This paper examines the type of oligopolistic competition that is likely to take place in these submarkets. It shows, using simple models, how stat ic or intertemporal Nash equilibria can rise in a framework of price or sup ply function competitions, found to be more realistic than Cournot models i n the particular case of short-term competition in the electric power marke t. This paper shows also how transmission constraints can play a direct rol e in the outcome of the oligopolistic competition and encourage strategic b ehavior by the generators. Transmission lines that would not be constrained if the players did not know of their thermal limits may be strategically d riven to operate at these limits in order to maximize the profits of the pl ayers who have market power, leaving the others to cope with the consequenc es of such behavior. (C) 1999 Elsevier Science B.V. All rights reserved.