Game theory, Electrical power market and Dilemmas

Abstract

Several issues that are evolving in the highly competitive electric power market are going to be crucial, day by day, in terms of the motivation for the electricity generation with profit. The key point to optimize for the electrical power generators is to understand the real fact of power generation system behind existing dilemma situations that will carry the better prospect with more profit in the long run. Game theory can approach the solution of the problems as well. This paper shows the profit with production in terms of with(out) contract for difference (CfD) for two electrical power generators that faces the various dilemma strength situations in four different game classes: Prisoner’s dilemma, Trivial, Chicken, and Stag-Hunt relying on the different payoff matrix of 2 × 2 games. Prisoner’s dilemma matrix game indicates the higher profit which is achieved through the lower production rate for both generators by negotiation that is denoted as Nash equilibrium and the profit is also increased with reducing dilemma situation, which is more realistic in the real sense than Trivial game which provides higher profit with the agreement. According to the risk-aversion severity, the Chicken game has a strong impact based on real-life regarding the electrical power generators against dilemma situations. Stag-hunt shows neutrality to choose better option due to the demand of the situation.