Spatially oligopolistic model with nodal opportunity cost pricing for transmission capacity reservations

Two markets co-exist in a unbundled electricity supply industry: the one of the electricity supply and the one of transmission capacity reservations. The first one could be assumed as an oligopoly, and the second one, as a natural monopoly, is regulated. The prices in the first market is determined by an oligopolistic equilibrium. The prices in the second market are set equal to opportunity costs. The strong interaction of the behavior of the two markets requires a new concept of equilibrium. In this equilibrium, the two markets must be simultaneously in their own equilibrium: Nash equilibrium in the first and market-clearing equilibrium in the second. A 3-bus example is presented to show the main result of the model.