A demand-based optimization approach to find market equilibria in oligopolies

Oligopolistic competition occurs when a small number of operators compete for the same pool of customers. This is often the case in transportation, due to reasons such as external regulations, economies of scale and limited capacity of the infrastructure. We present a demand-based optimization approach to study market equilibria in oligopolies. The framework takes into account interactions between demand and supply as well as competition among suppliers. In particular, the preferences of the customers are modelled at a disaggregate level according to random utility theory, while competition is modelled as a multi-leader-follower game. To find equilibrium solutions, we propose a fixed-point optimization model which can incorporate both nonlinear and linearized customer choices probabilities. Due to its complexity, the model can only tackle small-size instances with restricted strategy sets. Finally, we include a preliminary description of a heuristic approach that can be used to efficiently select for all competitors a subset of strategies that have the potential to produce equilibrium or near-equilibrium solutions.