2005
DOI: 10.1287/opre.1050.0211
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Generation Capacity Expansion in Imperfectly Competitive Restructured Electricity Markets

Abstract: We consider three models of investments in generation capacity in restructured electricity systems that differ with respect to their underlying economic assumptions. The first model assumes a perfect, competitive equilibrium. It is very similar to the traditional capacity expansion models even if its economic interpretation is different. The second model (open-loop Cournot game) extends the Cournot model to include investments in new generation capacities. This model can be interpreted as describing investment… Show more

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Cited by 314 publications
(202 citation statements)
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References 30 publications
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“…The results concerning production, price, consumer rent and profits for the three models are in line with the expectations based on previous work (see, e.g., Murphy and Smeers, 2005). Total production as well as consumer rent are highest in the case of a perfectly competitive market followed by the closed-loop and open-loop models.…”
Section: Discussionsupporting
confidence: 90%
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“…The results concerning production, price, consumer rent and profits for the three models are in line with the expectations based on previous work (see, e.g., Murphy and Smeers, 2005). Total production as well as consumer rent are highest in the case of a perfectly competitive market followed by the closed-loop and open-loop models.…”
Section: Discussionsupporting
confidence: 90%
“…3 Fudenberg and Tirole (1991) and the literature cited therein generally address the issue of diverging results of open-loop models in comparison to closed-loop models and provide intuition for the divergence: In the closed-loop model, in contrast to the open-loop model, a player's influence via its own actions in the first stage on the other players' actions in the second stage is taken into account. Applying this intuition to the special case of the capacity expansion problem, Murphy and Smeers (2005) show that in the closed-loop equilibrium, marginal investment costs may be higher than the sum of the short-term marginal value implied by the KKT conditions. In particular, they note that "the difference between the two characterizes the value for the player of being able to manipulate the short-term market by its first stage investments."…”
Section: Discussion Of the Models And Equilibrium Conceptsmentioning
confidence: 98%
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“…Reference [15] proposes a payoff-based approach for generation expansion planning to meet the economic and efficiency requirements of the electricity market. Reference [16] presents three models for generation expansion planning. The first proposes a perfect competitive equilibrium, the second is the open loop Cournot equilibrium and the third one is the closed loop cournot equilibrium.…”
Section: Introductionmentioning
confidence: 99%