Nash Equilibrium Bidding Strategies in a Bilateral Electricity Market

This paper examines bidding strategies in a bilateral market in which generating companies submit bids to loads. A load accepts electricity delivery from the generator with the lowest bid at its bid price as long as this price is not higher than the load´s willingness to pay. Necessary and sufficient conditions of Nash equilibrium (NE) bidding strategy are derived based on a generic generating cost matrix and the loads´ willingness to pay vector. The study shows that in any NE, efficient allocation is achieved. Furthermore, all Nash equilibria are revenue equivalent for the generators. Based on the necessary and sufficient conditions, this problem is formulated as an optimal assignment problem. Network optimization techniques are applied to calculate NE bid prices for the generators.