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Abstract

The goal of this project is to develop methods for the analysis of strategic interaction in gas markets based on multi-level optimization models. The foundation is a model of the entry-exit system in gas markets with a focus on the strategic booking and nomination of gas suppliers.
The resulting two-level strategic interaction can be formulated as an equilibrium problem with equilibrium constraints (EPEC). In this market model every agent chooses their strategy taking into account the decisions made by the other agents simultaneously as well as future decisions. The EPEC to be analyzed thus describes a game, where every agent has to solve a two-level optimization problem, to be precise a mathematical program with equilibrium constraints (MPEC).
Exploiting the specific mathematical structure of the resulting EPEC, we derive conditions, under which solutions exist and are unique, and develop tailored algorithms for the computation of market equilibria. Based on the theoretical and algorithmic results we assess the impact of strategic interaction on booking prices and market outcomes and determine how those results change for different market structures and market designs.