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Capacity expansion under uncertainty in an oligopoly using indirect reinforcement-learning

Author

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  • Oliveira, Fernando S.
  • Costa, Manuel L.G.
Abstract
We model capacity expansion in oligopolistic markets, with endogenous prices, under uncertainty, considering multiple production technologies. As this environment is complex, capacity expansion is the outcome of a learning process by individual firms. We propose indirect reinforcement-learning to model the interaction between price determination and capacity decisions, in the context of an oligopoly game. We apply our model to the analysis of the Iberian electricity market, considering multiple technologies, focusing on how subsidies, the prices of CO2 emissions and gas affect the capacity expansion policies.

Suggested Citation

  • Oliveira, Fernando S. & Costa, Manuel L.G., 2018. "Capacity expansion under uncertainty in an oligopoly using indirect reinforcement-learning," European Journal of Operational Research, Elsevier, vol. 267(3), pages 1039-1050.
    • Handle: RePEc:eee:ejores:v:267:y:2018:i:3:p:1039-1050
    DOI: 10.1016/j.ejor.2017.11.013
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