Profit maximization for utility companies in an oligopolistic energy market with dynamic prices

Dynamic pricing and demand response are the key elements of the smart grid technologies. Utility companies can incentivize electricity customers to schedule their power hungry tasks during off-peak times of the day whereas demand response manages customers´ electricity consumption in response to supply conditions or market prices. The reaction of consumers to dynamic prices creates a feedback system in the smart grid that motivates the utility companies to model the consumers´ behavior in the process of determining the price. Letting the consumers select their provider of choice among multiple utility companies, may be modeled as a non-cooperative game. In this paper, we consider the process of determining dynamic electricity prices for electricity based on a modified Bertrand Competition Model of consumer behavior and in view of competition among multiple non-cooperative utility companies in an oligopolistic energy market. The proposed method maximizes the conservative estimate on the profit for each utility company. Results also demonstrate the effectiveness of the oligopolistic electrical market in decreasing the electricity cost to consumers.