Analysis of Collusive Behavior of Generation Companies in Power Market using Game Theory

Power Market, due to unique characteristics of power system, can not be considered as a competitive market. It is much more like an oligopoly market where small numbers of Generation Companies (GenCos) compete to supply the market demand. It became more obvious in 1990s and 2001 as some major crisis hit power markets around the globe. In such a situation, the ability of market participants could raise prices over the competitive level. On the other hand, there is also possible GenCos collude and as a result the market prices rise. The ability of raising the price in collusion is highly dependent on price elasticity of demand. In this paper, at first several reported recent research works related to the collusive behavior in the power market are reviewed. Then, an analytic model based on game theory is proposed to analyze the behavior of participants in competitive and collusive market states. Using the proposed model on a simple system, variation of the market price in both competitive & collusive states are investigated and effects of price elasticity on equilibrium point in a collusive state are studied. Furthermore, the numerical results obtained from the proposed collusion model and a monopolistic model of the market, are compared and the differences are interpreted.