Abstract
This paper studies a supply chain consisting of two suppliers and one retailer in a spot market, where the retailer uses the newsvendor solution as its purchase policy, and suppliers compete for the retailer’s purchase. Since each supplier’s bidding strategy affects the other’s profit, a game theory approach is used to identify optimal bidding strategies. We prove the existence and uniqueness of a Nash solution. It is also shown that the competition between the supplier leads to a lower market clearing price, and as a result, the retailer benefits from it. Finally, we demonstrate the applicability of the obtained results by deriving optimal bidding strategies for power generator plants in the deregulated California energy market.
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Supported in part by RGC (Hong Kong) Competitive Earmarked Research Grants (CUHK4167/04E and CUHK4239/03E), a Distinguished Young Investigator Grant from the National Natural Sciences Foundation of China, and a grant from Hundred Talents Program of the Chinese Academy of Sciences.
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Sethi, S.P., Yan, H. & Zhang, H. Analysis of a Duopoly Supply Chain and its Application in Electricity Spot Markets. Ann Oper Res 135, 239–259 (2005). https://doi.org/10.1007/s10479-005-6244-6
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DOI: https://doi.org/10.1007/s10479-005-6244-6