Capacity planning with competitive decision-makers: Trilevel MILP formulation, degeneracy, and solution approaches

Carlos Florensa, Pablo Garcia-Herreros, Pratik Misra, Erdem Arslan, Sanjay Mehta and Ignacio E. Grossmann

European Journal of Operational Research, 2017, vol. 262, issue 2, 449-463

Abstract: Capacity planning addresses the decision problem of an industrial producer investing on infrastructure to satisfy future demand with the highest profit. Traditional models neglect the rational behavior of some external decision-makers by assuming either static competition or captive markets. We propose a mathematical programing formulation with three levels of decision-makers to capture the dynamics of duopolistic markets. The trilevel model is transformed into a bilevel optimization problem with mixed-integer variables in both levels by replacing the third-level linear program with its optimality conditions. We introduce new definitions required for the analysis of degeneracy in multilevel models, and develop two novel algorithms to solve these challenging problems. Each algorithm is shown to converge to a different type of degenerate solution. The computational experiments for capacity expansion in industrial gas markets show that no algorithm is strictly superior in terms of performance.

Keywords: Combinatorial optimization; Multilevel programing; Degeneracy; Capacity expansion; Competitive markets (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0377221717303466
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:262:y:2017:i:2:p:449-463

DOI: 10.1016/j.ejor.2017.04.013

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().