Analysis of Multi-Oligopoly Games in the China’s Electricity Market

Abstract

The electric power industry plays a crucial role in modern societies, with its effective operation closely tied to economic progress and environmental sustainability. As the world's largest, China's electric power industry operates as an oligopoly. Understanding the dynamics of competition and cooperation among multiple oligopolies in this market is essential for optimizing the industry. This study employs the Cournot and Stackelberg models to analyze the complex interactions among electricity producers. The Cournot model results indicate that while cooperation among oligopolies can yield significant benefits, total market output during cooperative periods is lower than in a competitive environment, which is detrimental to consumers. The pursuit of higher profits, however, challenges the state of cooperation, as each oligopoly seeks to expand its market share, potentially leading to a Nash equilibrium. Even as the market sees an increase in smaller stakeholders due to advancements in renewable energy, the same findings apply under the leader-follower dynamics modeled by the Stackelberg model. These insights aim to inform decision-making processes for electricity producers and relevant government regulatory authorities to improve the industry’s resource allocation and foster sustainable growth. The simulation results indicate that marginal cost has a negative impact on the equilibrium generation amount, with power producers having lower marginal costs achieving higher equilibrium profits.