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A Tractable Multi-Leader Multi-Follower Peak-Load-Pricing Model with Strategic Interaction

Submission Status:"Mathematical Programming" forthcoming
  • While single-level Nash equilibrium problems are quite well understood nowadays, less is known about multi-leader multi-follower games. However, these have important applications, e.g., in the analysis of electricity and gas markets, where often a limited number of firms interacts on various subsequent markets. In this paper, we consider a special class of two-level multi-leader multi-follower games that can be applied, e.g., to model strategic booking decisions in the European entry-exit gas market. For this nontrivial class of games, we develop a solution algorithm that is able to compute the complete set of Nash equilibria instead of just individual solutions or a bigger set of stationary points. Additionally, we prove that for this class of games, the solution set is finite and provide examples for instances without any Nash equilibria in pure strategies. We apply the algorithm to a case study in which we compute strategic booking and nomination decisions in a model of the European entry-exit gas market system. Finally, we use our algorithm to provide a publicly available test library for the considered class of multi-leader multi-follower games. This library contains problem instances with different economic and mathematical properties so that other researchers in the field can test and benchmark newly developed methods for this challenging class of problems.

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Author:Veronika Grimm, Daniel Nowak, Lars Schewe, Martin Schmidt, Alexandra Schwartz, Gregor Zöttl
DOI:https://doi.org/10.1007/s10107-021-01708-0
Document Type:Preprint
Language:English
Date of Publication (online):2020/07/21
Date of first Publication:2020/07/21
Release Date:2020/07/21
Tag:Game theory; Multi-leader multi-follower game; Nash-Cournot equilibria; Peak-load pricing
Page Number:35
Institutes:Friedrich-Alexander-Universität Erlangen-Nürnberg
Technische Universität Darmstadt
Universität Trier
University of Edinburgh
Subprojects:A05
B07
B08
B09
Licence (German):License LogoCreative Commons - CC BY - Namensnennung 4.0 International