The equilibrium models in oligopoly electricity market

We consider electricity producers playing on the energy market. We model an oligopoly market facing uncertain demand, where each firm chooses as its strategy a supply function relating quantity to price. Such strategy allows a producer to adapt better to the uncertain environment than either setting a fixed price or a fixed quantity. We apply model of supply function competition in oligopoly under demand uncertainty, developed by Klemperer and Meyer [5]. We assume that the uncertain demand is a function of the price and the stochastic shock. We describe the shock by PARMA system (periodic ARMA model). Our aim in this paper is to provide as realistic as possible model of oligopolistic competition in single period game. Our belief is that the model we apply better represents oligopoly behaviour than standard Bertrand and Cournot models