Analysis of a Duopoly Supply Chain and its Application in Electricity Spot Markets |
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Authors: | Suresh P Sethi Houmin Yan Hanqin Zhang |
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Institution: | (1) School of Management, University of Texas at Dallas, Richardson, TX 75083, USA;(2) Department of Systems Engineering and Engineering Management, The Chinese University of Hong Kong, Shatin, N.T., Hong Kong;(3) Institute of Applied Mathematics, Academia Sinica, Beijing, 100080, China |
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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.
Supported in part by RGC (Hong Kong) Competitive Earmarked Research Grants (CUHK4167/04E and CUHK4239/03E), a Distinguished
Young Investigator Grant from the National Natural Sciences Foundation of China, and a grant from Hundred Talents Program
of the Chinese Academy of Sciences. |
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Keywords: | demand allocation game theory information updates dynamic programming deregulated energy market |
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