Risk Control for Cost Uncertainty in Dynamic Oligopolistic Competition

Abstract

This article presents a robust optimization formulation for dealing with raw materials price uncertainty in an oligopolistic competition market scenario. Participants in the market face equilibrium selling price and uncertain production cost, at the same time. We show that the robust optimization formulation, based on a nominal problem, may be articulated as a variational inequality involving control and state variables. This convenient approach may be exploited for computation of optimal solutions, which can help manufactories dramatically and rapidly alter production and distribution schedules, in order to compete in the market successfully.