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

21 Pages Posted: 9 Apr 2008 Last revised: 1 May 2014

See all articles by Suresh Sethi

Suresh Sethi

University of Texas at Dallas - Naveen Jindal School of Management

Houmin Yan

The Chinese University of Hong Kong (CUHK) - Department of Systems Engineering & Engineering Management

Hanqin Zhang

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Sciences

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.

Keywords: demand allocation, game theory, information updates, dynamic programming, deregulated energy market

JEL Classification: C61, C72, L5, M2, Q4

Suggested Citation

Sethi, Suresh and Yan, Houmin and Zhang, Hanqin, Analysis of a Duopoly Supply Chain and its Application in Electricity Spot Markets. Annals of Operation Research, Vol. 135, No. 1, 2005. Available at SSRN: https://ssrn.com/abstract=1118351

Suresh Sethi (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 W. Campbell Road, SM30
Richardson, TX 75080-3021
United States

Houmin Yan

The Chinese University of Hong Kong (CUHK) - Department of Systems Engineering & Engineering Management ( email )

Shatin, New Territories
Hong Kong

Hanqin Zhang

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Sciences ( email )

Zhong-Guan-Cun-Dong-Lu 55, Haidian District
Beijing, Beijing 100080
China

Register to save articles to
your library

Register

Paper statistics

Downloads
214
Abstract Views
601
rank
142,499
PlumX Metrics