Nonzero-Sum Stochastic Impulse Games with an Application in Competitive Retail Energy Markets

DOI10.1051/COCV/2023089arXiv2112.10213OpenAlexW4389392601MaRDI QIDQ6151940FDOQ6151940

Authors: René Aïd, M'hamed Gaigi, Mohamed Mnif 

Publication date: 11 March 2024

Published in: ESAIM: Control, Optimisation and Calculus of Variations (Search for Journal in Brave)

Abstract: We study a nonzero-sum stochastic differential game with both players adopting impulse controls, on a finite time horizon. The objective of each player is to maximize her total expected discounted profits. The resolution methodology relies on the connection between Nash equilibrium and the corresponding system of quasi-variational inequalities (QVIs in short). We prove, by means of the weak dynamic programming principle for the stochastic differential game, that the value function of each player is a constrained viscosity solution to the associated QVIs system in the class of linear growth functions. We also introduce a family of value functions converging to our value function of each player, and which is characterized as the unique constrained viscosity solutions of an approximation of our QVIs system. This convergence result is useful for numerical purpose. We apply a probabilistic numerical scheme which approximates the solution of the QVIs system to the case of the competition between two electricity retailers. We show how our model reproduces the qualitative behaviour of electricity retail competition.

Full work available at URL: https://arxiv.org/abs/2112.10213

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zbMATH Keywords

Nash equilibriumviscosity solutionstochastic impulse games

Mathematics Subject Classification ID

Applications of game theory (91A80) Economic models of real-world systems (e.g., electricity markets, etc.) (91B74) Differential games and control (49N70) Dynamic programming in optimal control and differential games (49L20) Viscosity solutions to Hamilton-Jacobi equations in optimal control and differential games (49L25) Stochastic games, stochastic differential games (91A15) Impulsive control/observation systems (93C27)

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