Dynamic games-based modeling of electricity markets

In this paper, an electricity market is modeled as a dynamic process. Generators "learn" market opportunities on daily and/or hourly bases and evaluate their next bids by following the assumed strategies and by using the available information about the past market clearing prices and their own marginal-cost functions to adjust the chosen strategy. The model developed shows that repetition of bidding actually plays a significant role in the market dynamics. Simulations are provided to illustrate several critical factors in determining level of market power exercised. Most of these factors cannot be captured using traditional static market models.