Incorporating Fairness into Electricity Pricing Games

This paper investigates the incorporation of fairness considerations, as defined in the behavioral economics literature, into game-theoretic formulations of dynamic pricing algorithms in electricity markets. Traditionally, these markets are modeled using Stackelberg equilibria between electricity producers (companies) and consumers, where the producer acts as the leader by setting the electricity price, and consumers respond by adjusting their load. This conventional order of play inherently limits the producer's ability to arbitrarily increase prices, as the load is price-dependent and the producer commits to supplying a minimum load prior to the interaction. Recent analyses, however, indicate that the order of play may reverse in practical scenarios where players converge to equilibrium through learning dynamics. In this reversed hierarchy, fairness constraints become pivotal in preventing the producer from opportunistically escalating prices without bound. Employing a time-of-use pricing framework established in existing literature, we perform a numerical analysis of the equilibria associated with both orders of play, with particular emphasis on the role of the introduced fairness considerations.