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Quasi-variational inequalities, generalized Nash equilibria, and multi-leader-follower games. (English) Zbl 1115.90059
Comput. Manag. Sci. 2, No. 1, 21-56 (2005); erratum ibid. 6, No. 3, 373-375 (2009).
Summary: The noncooperative multi-leader-follower game can be formulated as a generalized Nash equilibrium problem where each player solves a nonconvex mathematical program with equilibrium constraints. Two major deficiencies exist with such a formulation: One is that the resulting Nash equilibrium may not exist, due to the nonconvexity in each player’s problem; the other is that such a nonconvex Nash game is computationally intractable. In order to obtain a viable formulation that is amenable to practical solution, we introduce a class of remedial models for the multi-leader-follower game that can be formulated as generalized Nash games with convexified strategy sets. In turn, a game of the latter kind can be formulated as a quasi-variational inequality for whose solution we develop an iterative penalty method. We establish the convergence of the method, which involves solving a sequence of penalized variational inequalities, under a set of modest assumptions. We also discuss some oligopolistic competition models in electric power markets that lead to multi-leader-follower games.

90C33 Complementarity and equilibrium problems and variational inequalities (finite dimensions) (aspects of mathematical programming)
91A65 Hierarchical games (including Stackelberg games)
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