Monday, October 30, 2017
Keller Colloquium in Computing and Mathematical Sciences
Market Power in Power Markets: Folklore, Proofs, and Counterexamples
Assistant Professor Eilyan Bitar, School of Electrical and Computer Engineering, Cornell University
The late 20th century witnessed a major restructuring of the US electric power industry to facilitate the competitive procurement of electricity from generators in open markets. These markets are, however, vulnerable to the exercise of market power by certain generators given the largely inelastic nature of electricity demand in the short run, and the presence of generation/transmission capacity constraints -- the combination of which can result in the emergence of transmission-congested regions of the power grid (or "load pockets") where the need to balance the local instantaneous demand for electricity becomes reliant on the output of a handful of generators. In this lecture, we'll examine a stylized model of imperfect competition in power markets. In particular, we will establish natural conditions under which Nash equilibria are guaranteed to exist, and elucidate the explicit role of certain market structures in determining the extent to which price-anticipating generators are able to exercise market power to influence the allocations and prices seen at equilibrium. We close with a discussion surrounding the practical implications of such results.