Strategic bidding with application of game theory

In a competitive electricity market, the power suppliers develop bidding strategies in order to maximize their own profits. The competition among participants is modeled as a non-cooperative game with incomplete information. This paper presents an optimization model of the bidding problem and formulates a novel approach with the application of game theory and probability theory. By introducing the concept of virtual rival, the method can efficiently deal with the problem of multi-person gaming and incomplete information, which remains very difficult problems in the game theory. Furthermore, the paper demonstrates the determination of Nash equilibrium when all participants try to maximize their profit in the same manner and in a complete information environment. Numerical results show the efficiency of the proposed approach.