Data envelopment analysis and stochastic equilibrium analysis for market power investigation in a bi-level market

Chin-Yi Tseng, Chia-Yen Lee, Qunwei Wang and Changsong Wu

Transportation Research Part E: Logistics and Transportation Review, 2022, vol. 161, issue C

Abstract: This study investigates how the exercise of market power affects the economic efficiency and revenue sharing in a bi-level market, which integrates upstream contract market and downstream wholesale market. We consider price volatility and identify Nash equilibrium restricted by the data envelopment analysis (DEA)-estimated capacity constraint. This study develops stochastic mixed complementarity problems (MiCP) models embedded with stochastic programming (SP) and robust optimization (RO) to address price uncertainty in a bi-level market. We investigate the exercise of market power: (1) wholesalers as leaders or (2) bilateral market power between manufacturers and wholesalers. A numerical study of the power generation market is conducted to validate the proposed stochastic MiCP models. The results show that price uncertainties in the upstream contract market have a significant effect in a bi-level market, and thus controlling price volatility in the upstream contract market will improve productivity and support policies. In addition, we suggest the wholesalers should be market leaders and the manufacturers should negotiate profit-sharing contracts with the wholesalers in a deregulated system.

Keywords: Data envelopment analysis; Market power; Equilibrium analysis; Bi-level market; Stochastic programming; Robust optimization (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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DOI: 10.1016/j.tre.2022.102705

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