Government constraints: influences on irregularities in the energy sector

Purpose To address the various irregularities that occurred during the development of China’s electricity market, particularly the issue of collusive pricing between upstream and downstream firms. Design/methodology/approach This study constructs a tripartite evolutionary game model involving government regulators, grid operators and power producers to address electricity market pricing chaos. By analyzing the stable strategies within each subject’s evolutionary game, adjustments to the relevant parameters are made to achieve a stable state of strategy selection. Findings The findings of this study indicate the following: (1) Enhancing the government’s rewards and punishments, increasing speculation and rent-seeking costs for grid operators and modifying tariff sales revenue can promote the integrity of grid operators. (2) Establishing reasonable incentives and penalties can effectively mitigate rent-seeking behaviors resulting from collusive pricing in the power industry. (3) Strengthening the accountability of higher authorities to government regulators and adjusting incentives for grid operators to comply and generators to refrain from rent-seeking behavior can increase the likelihood of rigorous inspections by government regulators. Originality/value This study elucidates the impact of factors such as the cost of speculation and sales revenue of grid operators, the cost of rent-seeking by power producers and the strength of rewards and punishments by government departments on the power sector. Adjusting these factors can significantly influence the stability of the three-party evolutionary game, providing valuable insights into the regulatory mechanisms of the power industry.