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Multiequilibrium Game of Timing and Competition of Gas Pipeline Projects

Author

Listed:
  • G. Klaassen

    (International Institute for Applied Systems Analysis)

  • A. V. Kryazhimskii

    (Steklov Mathematical Institute
    International Institute for Applied Systems Analysis)

  • A. M. Tarasyev

    (International Institute for Applied Systems Analysis
    Institute of Mathematics and Mechanics)

Abstract

The paper addresses the issue of the optimal investments in innovations with strong long-term aftereffects. As an example, investments in the construction of gas pipelines are considered. The most sensitive part of an investment project is the choice of the commercialization time (stopping time), i.e., the time of finalizing the construction of the pipeline. If several projects compete on the market, the choices of the commercialization times determine the future structure of the market and thus become especially important. Rational decisions in this respect can be associated with Nash equilibria in a game between the projects. In this game, the total benefits gained during the pipelines life periods act as payoffs and the commercialization times as strategies. The goal of this paper is to characterize multiequilibria in the game of timing. The case of two players is studied in detail. A key point in the analysis is the observation that, for all players, the best response commercialization times concentrate at two instants that are fixed in advance. This reduces decisionmaking to choosing between two fixed investment policies (fast and slow) with the prescribed commercialization times. A description of a simple algorithm that finds all the Nash equilibria composed of fast and slow scenarios concludes the paper.

Suggested Citation

  • G. Klaassen & A. V. Kryazhimskii & A. M. Tarasyev, 2004. "Multiequilibrium Game of Timing and Competition of Gas Pipeline Projects," Journal of Optimization Theory and Applications, Springer, vol. 120(1), pages 147-179, January.
    • Handle: RePEc:spr:joptap:v:120:y:2004:i:1:d:10.1023_b:jota.0000012737.20285.33
    DOI: 10.1023/B:JOTA.0000012737.20285.33
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    References listed on IDEAS

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    1. Kaniovski, Yuri M. & Kryazhimskii, Arkadii V. & Young, H. Peyton, 2000. "Adaptive Dynamics in Games Played by Heterogeneous Populations," Games and Economic Behavior, Elsevier, vol. 31(1), pages 50-96, April.
    2. A.M. Tarasyev, 1999. "Control synthesis in grid schemesfor Hamilton‐Jacobi equations," Annals of Operations Research, Springer, vol. 88(0), pages 337-359, January.
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    Cited by:

    1. Adrian Werner, Kristin Tolstad Uggen, Marte Fodstad, Arnt-Gunnar Lium, and Ruud Egging, 2014. "Stochastic Mixed-Integer Programming for Integrated Portfolio Planning in the LNG Supply Chain," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).

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