Strategic pricing when electricity is storable

In this paper, we develop a simplified oligopoly model where hydro generato rs engage in dynamic Bertrand competition. Each player uses a Markov strate gy based on the state of water reservoirs at the beginning of each period. The replenishing of water reservoirs, which affects generators' productive capacity, is governed by a stochastic process. Also, a price cap, i.e. a ma ximum bid allowed, is imposed on the market. We develop valuable insights f or regulatory policy in predominantly hydro based electricity markets, incl uding the effects of price caps, the efficiency of dispatch under strategic behavior and the likelihood of collusion.