Impacts of suppliers' learning behaviour on market equilibrium under repeated linear supply-function bidding

Abstract

The paper studies the impacts of learning behaviour of electrical-power suppliers on electricity-spot-market equilibrium under repeated linear supply-function bidding. In the markets, the supplier will conduct 'learning' to improve his strategic bidding in order to obtain greater profit. Therefore, it is significant to explore the impacts of such learning behaviour on market equilibria and market-clearing price (MCP). First the mathematical model for supplier's optimal bidding is established. This is then used to solve for market equilibrium. It is shown that supply-function equilibrium is a Nash equilibrium; and that under certain conditions the overall learning behaviour will reduce the MCP, which in turn increases consumers' surplus and decreases suppliers' profits, while in some other conditions the results are just the contrary. In either case, the MCP at equilibrium induced by the overall learning behaviour reflects the true relationship of supply and demand. Numerical results support the analytical conclusions very well.