This paper analyzes the impact of peer effects on electricity consumption ofa network of rational, utility-maximizing users. Users derive utility fromconsuming electricity as well as consuming less energy than their neighbors.However, a disutility is incurred for consuming more than their neighbors. Tomaximize the profit of the load-serving entity that provides electricity tosuch users, we develop a two-stage game-theoretic model, where the entity setsthe prices in the first stage. In the second stage, consumers decide on theirdemand in response to the observed price set in the first stage so as tomaximize their utility. To this end, we derive theoretical statements underwhich such peer effects reduce aggregate user consumption. Further, we obtainexpressions for the resulting electricity consumption and profit of the loadserving entity for the case of perfect price discrimination and a single priceunder complete information, and approximations under incomplete information.Simulations suggest that exposing only a selected subset of all users to peereffects maximizes the entity's profit.
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