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Achieving Hierarchy-Free Approximation for Bilevel Programs with Equilibrium Constraints

Jiayang Li · Jing Yu · Boyi Liu · Yu Nie · Zhaoran Wang

Exhibit Hall 1 #621
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Abstract: In this paper, we develop an approximation scheme for solving bilevel programs with equilibrium constraints, which are generally difficult to solve. Among other things, calculating the first-order derivative in such a problem requires differentiation across the hierarchy, which is computationally intensive, if not prohibitive. To bypass the hierarchy, we propose to bound such bilevel programs, equivalent to multiple-followers Stackelberg games, with two new hierarchy-free problems: a $T$-step Cournot game and a $T$-step monopoly model. Since they are standard equilibrium or optimization problems, both can be efficiently solved via first-order methods. Importantly, we show that the bounds provided by these problems --- the upper bound by the $T$-step Cournot game and the lower bound by the $T$-step monopoly model --- can be made arbitrarily tight by increasing the step parameter $T$ for a wide range of problems. We prove that a small $T$ usually suffices under appropriate conditions to reach an approximation acceptable for most practical purposes. Eventually, the analytical insights are highlighted through numerical examples.

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