A multi-period game-theoretic approach to market fairness in oligopolies

TL;DR

This paper develops a multi-period game-theoretic model to analyze fair customer allocation in oligopolies, considering various contractual agreements and their impact on social welfare and bargaining outcomes.

Contribution

It introduces a novel multi-period framework for fairness in oligopoly customer allocation, incorporating diverse contract types and a mixed-integer nonlinear programming approach.

Findings

Fairness schemes significantly influence customer distribution outcomes.

Different contractual mechanisms impact social welfare and market efficiency.

The proposed solution efficiently handles complex nonlinear optimization problems.

Abstract

Contemporary process industries are constantly confronted with volatile market conditions that jeopardise their financial sustainability. While mature markets transition to oligopoly structures, the supply chain operation should adapt to a more customer-centric focus. Key issues related to the modelling and impact of the related contractual agreements between firms and customers remain largely unexplored. In the present work, we examine the problem of fair customer allocation in oligopolies under different contractual agreements within a multi-period setting. We consider an ensemble of contract types that vary in terms of pricing mechanisms and duration. The role of fairness is examined following the social welfare and Nash bargaining scheme. In the latter case, the overall problem is formulated as an MINLP. For its efficient solution we employ a piecewise linearisation strategy based on special-ordered sets. The impact of the different fairness schemes on the optimal customer allocation is evaluated via two case studies from the industrial gases market.