Modern wholesale electricity markets often have producers who exercise market power. The standard way to model market power in an oligopoly with a competitive fringe is by using Mixed Complementarity Problems (MCPs) and conjectural variations. However, such models can lead to myopic (sub-optimal) behaviour for oligopolists. We first build on existing literature to show that an oligopoly with a competitive fringe where all firms have investment decisions will also lead to myopic behaviour when modelled using MCPs with conjectural variations. To overcome this issue, we develop an Equilibrium Problem with Equilibrium Constraints (EPEC) to model such an electricity market structure. The EPEC models two types of players: price-making firms, who have market power, and price-taking firms, who do not. Our model is the first in the literature to consider an oligopoly with a competitive fringe where all firms have investment decisions. Our results indicate that an EPEC can model investment decisions in an oligopoly with a competitive fringe more credibly and thus overcome the myopic behaviour observed in MCPs. The EPEC found multiple equilibria for investment decisions and firms’ profits. Despite this, market prices and consumer costs were found to remain relatively constant across the equilibria. A further contribution of the modelling approach is that it shows how it may be optimal for price-making firms to accept losses in some time periods in order to disincentivize price-taking firms from investing further into the market. We conclude our paper with a discussion of the computational limitations of our approach.

现代批发电力市场通常有行使市场支配力的生产者。对具有竞争边缘的寡头垄断市场力量建模的标准方法是使用混合互补问题 (MCP) 和推测变体。然而，这样的模型可能导致寡头垄断者短视（次优）行为。我们首先在现有文献的基础上表明，当使用具有推测性变化的 MCP 建模时，所有公司都有投资决策的具有竞争边缘的寡头垄断也会导致近视行为。为了克服这个问题，我们开发了一个具有均衡约束的均衡问题 (EPEC) 来模拟这种电力市场结构。EPEC 模拟了两种类型的参与者：具有市场支配力的定价公司和不具有市场支配力的价格接受公司。我们的模型是文献中第一个考虑具有竞争边缘的寡头垄断，其中所有公司都有投资决策。我们的结果表明，EPEC 可以更可靠地模拟具有竞争边缘的寡头垄断中的投资决策，从而克服在 MCP 中观察到的短视行为。EPEC 发现了投资决策和公司利润的多重均衡。尽管如此，市场价格和消费者成本被发现在整个均衡状态下保持相对稳定。该建模方法的另一个贡献是，它表明定价公司在某些时间段内接受损失可能是最优的，以阻止价格接受公司进一步投资于市场。我们通过讨论我们的方法的计算限制来结束我们的论文。