Analysis of a Duopoly Supply Chain and its Application in Electricity Spot Markets

Suresh Sethi, Houmin Yan and Hanqin Zhang

Annals of Operations Research, 2005, vol. 135, issue 1, 239-259

Abstract: This paper studies a supply chain consisting of two suppliers and one retailer in a spot market, where the retailer uses the newsvendor solution as its purchase policy, and suppliers compete for the retailer’s purchase. Since each supplier’s bidding strategy affects the other’s profit, a game theory approach is used to identify optimal bidding strategies. We prove the existence and uniqueness of a Nash solution. It is also shown that the competition between the supplier leads to a lower market clearing price, and as a result, the retailer benefits from it. Finally, we demonstrate the applicability of the obtained results by deriving optimal bidding strategies for power generator plants in the deregulated California energy market. Copyright Springer Science + Business Media, Inc. 2005

Keywords: demand allocation; game theory; information updates; dynamic programming; deregulated energy market (search for similar items in EconPapers)
Date: 2005
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DOI: 10.1007/s10479-005-6244-6

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