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There's complexity but leaving that aside and sticking to the concepts:
*Generators (power stations, wind farms etc) offer supply at whatever price they choose to offer it at.
*AEMO (Australian Energy Market Operator) dispatches generation starting with the cheapest until sufficient power is generated to match demand.
*The capacity of transmission lines will limit flow under certain circumstances as will an assortment of "what if?" technical constraints which aim to maintain system stability in the event that something fails. This precludes, for example, ever having a situation where no gas or diesel fired plant is running in SA even though wind generation + supply from Vic could meet the entire load. It could, but not if there's a sudden fault hence the constraint and there are many like that.
*The practical effect of constraints is to push some generation onto higher cost (what price the owners are offering it at, not necessarily what it actually costs to operate) plant.
*The vast majority of transmission and distribution is subject to price regulation and is funded by electricity consumers. The owners of these assets have no reason to be concerned about where the supply is coming from or going to - they're being paid a regulated return regardless.
*Main exception is Basslink, that is Tas - Vic transmission, which ultimately operates as a commercial for-profit operation.
*Where it all gets complex is that there's nothing to stop any power station pricing different volumes of output at very different prices if they want to. Some do, some just set one price and that's it.
*Prices can be negative. If there's oversupply then those with high costs to shutdown and restart will send prices below zero in an effort to avoid being the ones who are shut down by AEMO. Anyone buying electricity from the spot market would literally be paid to take it under those circumstances.
*Every company has their own strategies and the most substantial operators all have "trading rooms" where it's all done from.
*It's no secret that some companies use a strategy of reverse engineering the market. They're aiming for certain volumes and just set whatever price results in that volume being dispatched by AEMO over whatever period they're focused on (right now, today, this week, etc). If volume is higher than they want then they'll just raise prices and vice versa. Hydro operators needing to manage limited volumes of water are the main ones using this approach but anyone who's running low on coal etc will tend to do it also.
*There are also some who will just run flat out and take whatever price the market gives them. The now closed Hazelwood power station were particularly well known for doing that.
*The spot market is the means of determining physical dispatch but none of this precludes other financial arrangements between generators and retailers or other customers. Such arrangements generally have the effect of stabilising price and revenue for both parties.
*There's no law against contracts between rival generators and numerous such arrangements exist. There are some companies who refuse to deal with others but there's a lot of such arrangements overall.
*Also some instances of generation fully under contract to someone else. Eg Energy Australia doesn't own Newport D power station (Vic) but they have the rights to 100% of its output, they decide the pricing strategy and they supply the gas. The actual owners are rent collectors basically. That's just one example it's not the only one. One of the more complex would be Pelican Point in SA - Engie owns and operates it, Origin has half of it under contract for supply of gas and the electricity generated but the other half is Engie's as such.
*There are also a few instances of legislated operating limits on particular power stations in addition to physical limitations. Valley Power (Vic) is a 300 MW gas-fired plant owned by Snowy Hydro and subject to an operating hours limit of 876 hours per year imposed by the Victorian EPA. Another one is the 40 MW Eraring gas turbine (NSW) owned by Origin and subject to an annual 200 hour operating limit from the NSW EPA.
