Economic effects of the liberalisation of the German electricity market - Simulation results by a game theoretic modelling tool

In this paper, we conduct numerical experiments based upon the oligopolistic model of electricity market proposed in [1]-[2] and applied to the German electricity market. Presently, the German electricity market is shaped by strategic behavior of energy firms so that a perfect competition market has not been reached as yet. An oligopolistic market structure emerges from the analysis and is characterized not only by the mutual influence if prices due to the market shares and power but also by the introduced conjectured influence coefficients of each firm-producer at each market. In thus generalized Cournot model, at the Nash equilibrium, electricity firms maximize their profit and enlarge their market shares. In case of perfect competition, each agent reacts as a price taker equalizing prices and marginal costs in order to determine and maximize its profit. The computational game theoretic modeling tool developed in [1] in the programming language GAMS composed as a mixed complementarity problem (MCP) solved by the GAMS algorithm MILES was applied to the Germany electricity market data to obtain Nash equilibrium in the perfect competition, Cournot and extended Cournot cases. The latter case was modeled by various relationships between the real market elasticity and the elasticity quotients conjectured by the firms-producers. It turns out that the perfect competition scenario leads to implausibly high market shares, whereas in the extended Cournot models, mutual profit maximization and strategic behavior lead to the reasonable market shares by firm mergers, which establishes regional price variations resulting in distinctive net trades.