A bilevel game-theoretic decision-making framework for strategic retailers in both local and wholesale electricity markets

Qiuyi Hong, Fanlin Meng, Jian Liu, Rui Bo

Research output: Contribution to journalArticlepeer-review


This paper proposes a bilevel game-theoretic model for multiple strategic retailers participating in both wholesale and local electricity markets while considering customers’ switching behaviors. At the upper level, each retailer maximizes its own profit by making optimal pricing decisions in the retail market and bidding decisions in the day-ahead wholesale (DAW) and local power exchange (LPE) markets. The interaction among multiple strategic retailers is formulated using the Bertrand competition model. For the lower level, there are three optimization problems. First, the welfare maximization problem is formulated for customers to model their switching behaviors among different retailers. Second, a market-clearing problem is formulated for the independent system operator (ISO) in the DAW market. Third, a novel LPE market is developed for retailers to facilitate their power balancing. In addition, the bilevel multi-leader multi-follower Stackelberg game forms an equilibrium problem with equilibrium constraints (EPEC) problem, which is solved by the diagonalization algorithm. Numerical results demonstrate the feasibility and effectiveness of the EPEC model and the importance of modeling customers’ switching behaviors. We corroborate that incentivizing customers’ switching behaviors and increasing the number of retailers facilitates retail competition, which results in reducing strategic retailers’ retail prices and profits. Moreover, the relationship between customers’ switching behaviors and welfare is reflected by a balance between the electricity purchasing cost (i.e., electricity price) and the electricity consumption level.
Original languageEnglish
Article number120311
JournalApplied Energy
Early online date23 Nov 2022
Publication statusPublished - 15 Jan 2023


  • Bilevel model
  • strategic retailers
  • customers switching behaviors
  • wholesale and local markets
  • Bertrand competition
  • EPEC


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