Title: How Peer Effects Influence Energy Consumption,
Abstract: This paper analyzes the impact of peer effects on electricity consumption of
a network of rational, utility-maximizing users. Users derive utility from
consuming electricity as well as consuming less energy than their neighbors.
However, a disutility is incurred for consuming more than their neighbors. To
maximize the profit of the load-serving entity that provides electricity to
such users, we develop a two-stage game-theoretic model, where the entity sets
the prices in the first stage. In the second stage, consumers decide on their
demand in response to the observed price set in the first stage so as to
maximize their utility. To this end, we derive theoretical statements under
which such peer effects reduce aggregate user consumption. Further, we obtain
expressions for the resulting electricity consumption and profit of the load
serving entity for the case of perfect price discrimination and a single price
under complete information, and approximations under incomplete information.
Simulations suggest that exposing only a selected subset of all users to peer
effects maximizes the entity's profit.