Nash equilibrium in a singular stochastic game between two renewable power producers with price impact

Abstract: In this paper we solve the general problem, already formulated in Awerkin and Vargiolu (Decis. Econ. Finance 44(2), 2021) of finding a Nash equilibrium between two agents who can install irreversibly photovoltaic panels in order to maximize their profits of selling the produced electricity net of installation costs, in the case that their cumulative installations have an impact on power prices. Starting from a static version of the game, we find out that there exists a region in the state space where Nash equilibrium dictates that both players install, and in some cases this optimal installation strategy is non-unique. We then come back to the original continuous time problem, which needs a generalization of the Verification Theorem present in Awerkin and Vargiolu (Decis. Econ. Finance 44(2), 2021), taking into account a lack of smoothness of the value functions and the possible non-uniqueness of optimal strategies seen above. Finally, we explicitly construct the equilibrium strategies and the value functions, which depend on the two free boundaries which separate the region where each player installs or waits.