A network formulation of market equilibrium problems and variational inequalities (Q760328)

This paper shows that market equilibrium problems of production may generally be modelled as equilibrium flow problems in networks and that their equilibrium conditions can be visualized as a variational inequality. The main idea is as follows: The commodity demands and prices are arranged into column vectors d and \(\rho\) in \({\mathbb{R}}^ J\), where J is the total number of commodity, and \(\rho ={\hat \rho}(d)\) is a prescribed smooth function. The production factors of the market are visualized as the links of the network. Then, the amount of a commodity produced via a particular production process p can be visualized as the path commodity flow \(F_ p\) along the path p and the path flows F is arranged into a column vector F in \({\mathbb{R}}^ Q\), where Q is the total number of paths. A nonnegative path commodity flow F which satisfies the conservation of flow equations with the demand is said to be feasible. The link commodity flow f, induced by F, is arranged into a column vector f in \({\mathbb{R}}^{NJ}\), where N is the total number of links in the network. A feasible distribution is a pair (f,d) induced by a feasible F. The production cost is arranged into a column vector c in \({\mathbb{R}}^{NJ}\) and \(c=\hat c(f)\). The authors prove that a feasible market distribution \((\bar f,\bar d)\) is an equilibrium if and only if it satisfies the variational inequality \[ \hat c(\bar f)^ T(f-\bar f)- {\hat \rho}(\bar d)^ T(d-\bar d)\geq 0 \] for all feasible (f,d). Interestingly, this variational inequality has the same form as the variational inequality which characterizes the multimodal traffic equilibrium problem derived by the first author.