Optimal Bidding Strategies: An Empirical Conjectural Approach

Abstract The optimal bidding strategy for a generation company is a complex decision making problem involving numerous uncertainties. Generally, all market participants attempt to refine their strategies to earn greater profit. Success in the market requires not only successful forecasting of demand and other market conditions but also anticipating rival behaviours. The main objective of this paper is to suggest one use of historical data for purposes of strategic bidding. A conjectural model based on the market clearing process is presented. In this model, participants estimate a mark-up function for their competitors in the market. Based on these estimates, an optimal bid is found. Numerical examples highlight the methodology.