Robust Market Equilibria under Uncertain Cost

DOI10.1016/J.EJOR.2022.02.030arXiv2108.09139MaRDI QIDQ6375673FDOQ6375673

Christian Biefel, Lars Schewe, Jan Rolfes, F. Liers, Gregor Zöttl

Publication date: 20 August 2021

Abstract: This work studies equilibrium problems under uncertainty where firms maximize their profits in a robust way when selling their output. Robust optimization plays an increasingly important role when best guaranteed objective values are to be determined, independently of the specific distributional assumptions regarding uncertainty. In particular, solutions are to be determined that are feasible regardless of how the uncertainty manifests itself within some predefined uncertainty set. Our mathematical analysis adopts the robust optimization perspective in the context of equilibrium problems. First, we present structural insights for a single-stage, nonadjustable robust setting. We then go one step further and study the more complex two-stage or adjustable case where a part of the variables can adjust to the realization of the uncertainty. We compare equilibrium outcomes with the corresponding centralized robust optimization problem where thesum of all profits are maximized. As we find, the market equilibrium for the perfectly competitive firms differs from the solution of the robust central planner, which is in stark contrast to classical results regarding the efficiency of market equilibria with perfectly competitive firms. For the different scenarios considered, we furthermore are able to determine the resulting price of anarchy. In the case of non-adjustable robustness, for fixed demand in every time step the price of anarchy is bounded whereas it is unbounded if the buyers are modeled by elastic demand functions. For the two-stage adjustable setting, we show how to compute subsidies for the firms that lead to robust welfareoptimal equilibria.

Mathematics Subject Classification ID

Noncooperative games (91A10) Microeconomic theory (price theory and economic markets) (91B24) Robustness in mathematical programming (90C17)

This page was built for publication: Robust Market Equilibria under Uncertain Cost

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q6375673)