When Nash Meets Stackelberg (1910.06452v6)

Abstract: This article introduces a class of $Nash$ games among $Stackelberg$ players ($NASPs$), namely, a class of simultaneous non-cooperative games where the players solve sequential Stackelberg games. Specifically, each player solves a Stackelberg game where a leader optimizes a (parametrized) linear objective function subject to linear constraints while its followers solve convex quadratic problems subject to the standard optimistic assumption. Although we prove that deciding if a $NASP$ instance admits a Nash equilibrium is generally a $\Sigma^2_p$-hard decision problem, we devise two exact and computationally-efficient algorithms to compute and select Nash equilibria or certify that no equilibrium exists. We apply $NASPs$ to model the hierarchical interactions of international energy markets where climate-change aware regulators oversee the operations of profit-driven energy producers. By combining real-world data with our models, we find that Nash equilibria provide informative, and often counterintuitive, managerial insights for market regulators.