Analysis of market power of oligopolistic generators

A Nash-Cournot model, based on generating units´ marginal cost function, is set up to study oligopolistic generators´ market power and pricing strategy in the unilateral open electricity market. Factors that affect generators´ market power are analyzed. We find that in unilateral open electricity markets, oligopolistic generators always tend to raise its bidding price by making full use of its market power, which raise the overall electricity price in the whole market. In order to reduce the generators´ market power, the whole market total installation capacities must be increased and there must be no one generator whose capacity is too much relative to others. Further, measures must be taken to effectively monitor the operation of the market and to motivate the generators to undertake cost-cutting strategies through technical innovation. Reasonable competitive bidding system must also be set up to prevent collusion.