On a tractable single-level reformulation of a multilevel model of the European entry-exit gas market with market power

Veronika Grimm (), Julia Grübel (), Martin Schmidt (), Alexandra Schwartz (), Ann-Kathrin Wiertz () and Gregor Zöttl ()
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Veronika Grimm: University of Technology Nuremberg (UTN)
Julia Grübel: University of Technology Nuremberg (UTN)
Martin Schmidt: Trier University
Alexandra Schwartz: Technische Universität Dresden
Ann-Kathrin Wiertz: Friedrich-Alexander-Universität Erlangen-Nürnberg
Gregor Zöttl: Friedrich-Alexander-Universität Erlangen-Nürnberg

Journal of Global Optimization, 2025, vol. 91, issue 4, No 10, 953-985

Abstract: Abstract We propose a framework that allows to quantitatively analyze the interplay of the different agents involved in gas trade and transport in the context of the European entry-exit system. Previous contributions have focused on the case of perfectly competitive buyers and sellers of gas, which allows to replace the respective market equilibrium problem by a single welfare maximization problem. Our novel framework considers the mathematically more challenging case of a monopolistic and thus strategic gas seller. In this framework, the objective functions of the gas sellers and buyers cannot be aggregated into a common objective function, which is why a multilevel formulation is necessary to accurately capture the sequential nature of the decisions taken. For this setup, we derive sufficient conditions that allow for reformulating the challenging four-level model as a computationally tractable single-level reformulation. We prove the correctness of this reformulation and use it for solving several test instances to illustrate the applicability of our approach.

Keywords: Multilevel optimization; Reformulations; Gas markets; Market power; 91B24; 91B74; 90C26; 90C35 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10898-025-01475-8

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