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Evaluating the strategic behavior of cement producers: An equilibrium problem with equilibrium constraints

E. Allevi, A.J. Conejo, G. Oggioni, R. Riccardi and C. Ruiz

European Journal of Operational Research, 2018, vol. 264, issue 2, 717-731

Abstract: This paper investigates the equilibria reached by a number of strategic producers in the cement sector through a technological representation of the market. We present a bilevel model for each producer that characterizes its profit maximizing behavior. In the bilevel model, the upper-level problem of each producer is constrained by a lower-level market clearing problem representing cement trading and whose objective function corresponds to social welfare. Replacing the lower level problem by its optimality condition yields a Mathematical Program with Equilibrium Constraints (MPEC). Then, all strategic producers are jointly considered. Representing their interaction requires solving jointly the interrelated MPECs of all producers, which results in an Equilibrium Problem with Equilibrium Constraints (EPEC).

Keywords: Linear programming; Cement industry; Equilibrium problem with equilibrium Constraints (EPEC); Mixed-integer linear programming (MILP) (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:ejores:v:264:y:2018:i:2:p:717-731