  Market power behaviour often occurs in modern wholesale electricity markets.
Mixed Complementarity Problems (MCPs) have been typically used for
computational modelling of market power when it is characterised by an
oligopoly with competitive fringe. However, such models can lead to myopic and
contradictory behaviour. Previous works in the literature have suggested using
conjectural variations to overcome this modelling issue. We first show however,
that an oligopoly with competitive fringe where all firms have investment
decisions, will also lead to myopic and contradictory behaviour when modelled
using conjectural variations. Consequently, we develop an Equilibrium Problem
with Equilibrium Constraints (EPEC) to model such an electricity market
structure. The EPEC models two types of players: price-making firms, who have
market power, and price-taking firms, who do not. In addition to generation
decisions, all firms have endogenous investment decisions for multiple new
generating technologies. The results indicate that, when modelling an oligopoly
with a competitive fringe and generation investment decisions, an EPEC model
can represent a more realistic market structure and overcome the myopic
behaviour observed in MCPs. The EPEC considered found multiple equilibria for
investment decisions and firms' profits. However, market prices and consumer
costs were found to remain relatively constant across the equilibria. In
addition, the model shows how it may be optimal for price-making firms to
occasionally sell some of their electricity below marginal cost in order to
de-incentivize price-taking firms from investing further into the market. Such
strategic behaviour would not be captured by MCP or cost-minimisation models.
