We study competition between hydro and thermal electricity generators under de- mand uncertainty. Producers compete in quantities and each is constrained: the ther- mal generator by capacity and the hydro generator by water availability. We analyze a two-period game emphasizing the incentives...

The concept of a supply function equilibrium (SFE) has been widely used to model generators’ bidding behavior and market power issues in wholesale electricity markets. Observers of electricity markets have noted how generation capacity constraints may contribute to market power of generation...