Deterministic Asymmetric-cost Differential Games for Energy Production with Production Bounds

Junhe Chen () and Matt Davison ()
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Junhe Chen: Western University
Matt Davison: Western University

SN Operations Research Forum, 2021, vol. 2, issue 4, 1-38

Abstract: Abstract We study a continuous optimal control problem which models competition in the energy market. Competing agents maximize profits from selling crude oil by determining optimal production rates by solving Hamilton–Jacobi–Bellman (HJB) equations. The HJB equations arise from a differential game between two types of players: a single finite-reserve producer and multiple high-cost infinite-reserve producers. We extend an earlier similar model, deterministic unbounded-production to a bounded-production game, in which we show that the upper (lower) bound decreases (increases) the profit of finite-reserve player and the low-cost opponents and increases (decreases) the profit of high-cost opponents, due to the effects on the finite-reserve player’s exit time and the market price.

Keywords: Energy markets; HJB Equations; Differential games (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s43069-021-00097-6

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