Comparison and empirical validation of optimizing and agent-based models of the Italian electricity market

In recent years, several oligopolistic models of the liberalized power exchanges have been proposed, within two paradigms based upon radically different assumptions on rationality, learning and cognition: optimal choice and agent-based computational modeling. This paper is a first attempt to compare the explanatory performances of an agent-based model with a supply function equilibrium model on the same dataset. The models are designed in such a way that differences in performance between them are mainly due to their different behavioral assumptions, and are validated on a unique plant-level dataset on the Italian power exchange. As suggested by our findings, the agent-based model is better able to capture the intraday profile of power prices, but both models tend to overestimate the degree of competition among generating companies.