Analysis of a Duopoly Supply Chain and its Application in Electricity Spot Markets
21 Pages Posted: 9 Apr 2008 Last revised: 1 May 2014
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.
Keywords: demand allocation, game theory, information updates, dynamic programming, deregulated energy market
JEL Classification: C61, C72, L5, M2, Q4
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