Strategic Forward Contracting in the Wholesale Electricity Market

Par Holmberg

The Energy Journal, 2011, vol. 32, issue 1, 169-202

Abstract: This paper analyses a wholesale electricity market with supply function competition. Trade in the forward and spot markets is represented by a two-stage game, and its subgame perfect Nash equilibrium (SPNE) is characterized. It is verified that increased forward sales of a producer constitute a credible commitment to aggressive spot market bidding. The paper identifies market situations when this pro-competitive commitment is unilaterally profitable for the producer. It is also proven that a producer has incentives to sell in the forward market in order to reduce competitors’ forward sales, which softens their spot market offers.

Keywords: supply function equilibrium; forward market; strategic contracting; strategic substitutes; oligopoly; wholesale electricity market (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:enejou:v:32:y:2011:i:1:p:169-202

DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No1-7

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