Duopoly Cournot model with piecewise linear marginal costs and stranded costs recovery 1

We study the influence of long term contracts and stranded costs recoveries in the spot market strategic behavior of Spanish electricity generating companies. A Cournot model with two strategic players and with piecewise linear marginal costs is considered. We prove that for fixed demand, the optimization problem may have one, several or no solution at all. In addition, we show that long term contracts imply a more agressive behavior in the market and that the presence of stranded costs recoveries may result on prices smaller than the competitive equilibrium price. We, finally, illustrate our results with numerical demonstrations.