Energy production and trading: batting average: a composite measure of risk for assessing product differentiation in a simulation model

ABSTRACT

The paper simulates how market power affects electricity retailing to households. A pseudo-random number seeding algorithm creates representative product differentiation in repeated drawings, for an incumbent and seven challengers. A ninth <i>player</i> competitor decides how to distinguish her product. The simulation creates an <i>efficient</i> starting market, adjusted for competitor dominance; and, over a 12-month horizon, uses topology to <i>develop</i> unexploited profit opportunities for all competitors. A <i>best</i> solution criterion punishes nonconformists. Results of repeated drawings <i>varying</i> opposition to the player's <i>constant</i> product differentiation feed a batting average risk assessment. Decision rules reward hits based on profit and year's end market share. The <i>market</i> simulation tool supports conjectural assessment of social policy - household direct access to wholesale power, incentive for product differentiation versus that for mergers and acquisitions, and allocation of deregulation benefits to shareholders versus ratepayers.

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