FROM MONOPOLISTIC TO COMPETITIVE MARKETS ENVIRONMENT: MODELING USING AGENT-BASED MODELS

Abstract

Public service utilities all over the world have been facing pressure to be deregulated, evolving from regulated, vertically integrated monopoly structures to open markets that promote competition among suppliers and provide customers with a choice of services. This shift in market regime implies a fundamental change in the market laws, in the set of possible actions, the number of participants and the participants' strategies, since strategies that worked well under a monopolistic regime cannot be expected to work well in the different market environment.

System thinking and simulation models are suitable for studying such situations of dynamic, uncertain and subjective nature. Traditional "top-down" approaches require the existence of sufficient historical data and the absence of any structural breaks in the market under inspection, which do not hold for the public service utilities both. In contrast, the agent-based models (ABM) use a "bottom-up" approach to understand the underlying principles of economic markets; this allows one to capture many factors which cannot be represented within a traditional model. In addition, ABM draws advantages in terms of realism and the inclusion of learning effects.

In this thesis, a generic agent-based model is proposed and developed for deregulated electricity retail market; Generic Electricity Retailing Agent-based Model (GERAM). The model tries to figure out how does deregulation affects the price of electricity; will it increase or decrease? It also tracks the financial status of suppliers under competitive pricing. The model also incorporates the effect of spatial distribution of retailers and the..t rea of service covered by each retailer. In addition to the ABM retail model, an ABM for the wholesale market is proposed.

Results have shown that, generally, the average prices offered by retailers converge as a result of competition and in response to consumers' behavior, and conversely, consumers choose their supplier in response to their prices. The average prices don't change much as the number of companies in the system changes. On the other hand, prices are influenced by the service area covered by companies, and as the overlapping between service areas of companies increases, the average prices decrease. It has been also shown the importance of existence of a regulator whose role is to organize the deregulation process.