Investments in generation capacities in an oligopolistic electricity market

This article focuses on oligopolisitic strategies of investment in a con-text of uncertain growth of future demand. Investment in an electricity market is modelled with a long-term (30 years) stochastic Cournot game in production and investment. This numerical modelling differs from game theory models that study strategic behaviours in investment with theoretical two-stage oligopoly modelling and offer a description of the electricity market where demand and production ca-pacities do not evolve over time. The growth of demand is random. Players choose their levels of investment in gen-eration capacities for each future date and the capacities made available on the market. The decision process is one-stage but investment and production decisions applying in say year 2010, are in feedback over the random annual growths until 2010. Results suggest that restriction in production and capacity development by large players opens some space for small players to invest first and increase their market shares. They also suggest that commitment to a larger production by large players can delay the growth of the small players and yield greater expected profits to large players in the long-run. We thank Pierre-Olivier Pineau and Pauli Murto for making available a version of their codes