A Model Research On Tacit Collusion Between Oligopolistic Generation Companies

The electricity market in most countries and regions has shown typical characteristics of an oligopoly market. Theoretical studies on the industrial organization indicate that one important feature of the oligopoly market is oligopolistic firms may go out of the Prisoner's Dilemma of price war in repeated games, and reach a tacit collusion. Therefore, the study of tacit collusion between oligopolistic generation companies will have long-term effects on strengthening the cooperation, improving the competitive environment, and improving the performance of generation companies.In this paper, I build a mathematical model based on the basic characteristics of the power-generating market. Focus on the cyclical load demand fluctuations and generation companies capacity constraints two important characteristics of power market, I analyze tacit collusion between n symmetric generation companies, and also analyze the effect of the number of generation companies, the generation capacity and the cyclical load demand fluctuations on tacit collusion. After analyzing, I come to the conclusion that: (ⅰ) in the established load demand and generation capacity, single-stage game Nash equilibrium exists, and tacit collusion can be reached in infinitely repeated games; (ⅱ) the size of power generating capacity decides the maintenance of the tacit collusion, it's relatively difficult to maintain tacit collusion when generating capacity constraints is too large or too small; (ⅲ) the size of generation capacity and the number of generation companies also decide the maintenance of the tacit collusion, when the generating capacity constraints exists, it's relatively difficult to maintain tacit collusion when the number of generating enterprises is too large or too small; (ⅳ) if the generating capacity constraints is small, it's relatively difficult to maintain tacit collusion when the load demand falls; if the generating capacity constrain is large, it's relatively difficult to maintain tacit collusion when the load demand rises; (ⅴ) the price ceiling for peak demand promotes tacit collusion, and it's easier to maintain tacit collusion when the level of price ceiling decrease; the price ceiling for vale demand hinters tacit collusion, and it's more difficult to maintain tacit collusion when the level of price ceiling decrease.Another part of work of this paper is further analyzing other factors affected tacit collusion between generation companies. Based on industrial organization, I use the Incentive Compatibility conditions of tacit collusion to qualitatively analyze the effect of basic conditions factors, market structure factors, the market system factors, and regulation policy factors on tacit collusion.