An Empirical Study of Applied Game Theory: Transmission Constrained Cournot Behavior

Restructured energy markets present opportunities for the exercise of market power, meaning market players can potentially maintain prices in excess of competitive prices. In this paper, we investigate Cournot equilibrium in a simple example network. We analyze three market players in a transmission-constrained system and consider nonconstant marginal cost. Several scenarios are evaluated that show a pure strategy equilibrium can break down even when a transmission constraint exceeds the value of the unconstrained Cournot equilibrium line flow.