Networks and Spatial Economics

, Volume 12, Issue 4, pp 503–560 | Cite as

A Generalized Nash Equilibrium Model of Market Coupling in the European Power System

  • Giorgia Oggioni
  • Yves Smeers
  • Elisabetta Allevi
  • Siegfried Schaible


“Market Coupling” is currently seen as the most advanced market design in the restructuring of the European electricity market. Market Coupling, by construction, introduces what is generally referred to as an incomplete market: it leaves several constraints out of the market and hence avoids pricing them. This may or may not have important consequences in practice depending on the case on hand. Quasi-Variational Inequality problems and the associated Generalized Nash Equilibrium can be used for representing incomplete markets. Recent papers propose methods for finding a set of solutions of Quasi-Variational Inequality problems. We apply one of these methods to a subproblem of market coupling namely the coordination of counter-trading. This problem is an illustration of a more general question encountered, for instance, in hierarchical planning in production management. We first discuss the economic interpretation of the Quasi-Variational Inequality problem. We then apply the algorithmic approach to a set of stylized case studies in order to illustrate the impact of different organizations of counter-trading. The paper emphasizes the structuring of the problem. A companion paper considers the full problem of Market Coupling and counter-trading and presents a more extensive numerical analysis.


Generalized Nash Equilibrium Quasi-Variational Inequalities Market coupling Counter-trading European electricity market 

JEL Classification

D52 D58 Q40 


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Copyright information

© Springer Science+Business Media, LLC 2011

Authors and Affiliations

  • Giorgia Oggioni
    • 1
  • Yves Smeers
    • 2
  • Elisabetta Allevi
    • 1
  • Siegfried Schaible
    • 3
  1. 1.Department of Quantitative MethodsUniversity of BresciaBresciaItaly
  2. 2.School of Engineering and COREUniversité catholique de LouvainLouvain-la-NeuveBelgium
  3. 3.Department of Applied MathematicsChung Yuan Christian UniversityChung-LiTaiwan

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