A robust optimization model for dynamic market with uncertain production cost

Abstract

This article presents a robust optimization formulation for dealing with production cost uncertainty in an oligopolistic market scenario. It is not uncommon that players in the market face an equilibrium selling price but uncertain production costs. We show that, based on a nominal problem, the robust optimization formulation can be derived as a variational inequality with control and state variables. This convenient approach may be applied for computing optimal solutions efficiently, which help manufacturers dramatically and rapidly reform production and distribution schedules such that they can compete in the market successfully.