  Competition has been introduced in the electricity markets with the goal of
reducing prices and improving efficiency. The basic idea which stays behind
this choice is that, in competitive markets, a greater quantity of the good is
exchanged at a lower and a lower price, leading to higher market efficiency.
Electricity markets are pretty different from other commodities mainly due to
the physical constraints related to the network structure that may impact the
market performance. The network structure of the system on which the economic
transactions need to be undertaken poses strict physical and operational
constraints. Strategic interactions among producers that game the market with
the objective of maximizing their producer surplus must be taken into account
when modeling competitive electricity markets. The physical constraints,
specific of the electricity markets, provide additional opportunity of gaming
to the market players. Game theory provides a tool to model such a context.
This paper discussed the application of game theory to physical constrained
electricity markets with the goal of providing tools for assessing the market
performance and pinpointing the critical network constraints that may impact
the market efficiency. The basic models of game theory specifically designed to
represent the electricity markets will be presented. IEEE30 bus test system of
the constrained electricity market will be discussed to show the network
impacts on the market performances in presence of strategic bidding behavior of
the producers.
