American Institute of Mathematical Sciences

2013, 3(1): 95-108. doi: 10.3934/naco.2013.3.95

Linear quadratic differential games with mixed leadership: The open-loop solution

 1 Naveen Jindal School of Management, The University of Texas at Dallas, Richardson, TX 75080-3021, United States, United States, United States

Received  October 2011 Revised  November 2012 Published  January 2013

This paper is concerned with open-loop Stackelberg equilibria of two-player linear-quadratic differential games with mixed leadership. We prove that, under some appropriate assumptions on the coefficients, there exists a unique Stackelberg solution to such a differential game. Moreover, by means of the close interrelationship between the Riccati equations and the set of equations satisfied by the optimal open-loop control, we provide sufficient conditions to guarantee the existence and uniqueness of solutions to the associated Riccati equations with mixed-boundary conditions. As a result, the players' open-loop strategies can be represented in terms of the system state.
Citation: Alain Bensoussan, Shaokuan Chen, Suresh P. Sethi. Linear quadratic differential games with mixed leadership: The open-loop solution. Numerical Algebra, Control & Optimization, 2013, 3 (1) : 95-108. doi: 10.3934/naco.2013.3.95
References:
 [1] T. Başar, On the relative leadership property of Stackelberg strategies,, J. Optimization Theory and Applications, 11 (1973), 655.  doi: 10.1007/BF00935564.  Google Scholar [2] T. Başar and A. Haurie, Feedback equilibria in differential games with structural and modal uncertainties,, in, (1984), 163.   Google Scholar [3] T. Başar, A. Haurie and G. Ricci, On the dominance of capitalists' leadership in a feedback Stackelberg solution of a differential game model of capitalism,, J. Economic Dynamics and Control, 9 (1985), 101.  doi: 10.1016/0165-1889(85)90026-0.  Google Scholar [4] T. Başar and G. J. Olsder, "Dynamic Noncooperative Game Theory,", 2nd edition, (1995).   Google Scholar [5] T. Başar, A. Bensoussan and S. P. Sethi, Differential games with mixed leadership: the open-loop solution,, Applied Mathematics and Computation, 217 (2010), 972.  doi: 10.1016/j.amc.2010.01.048.  Google Scholar [6] A. Bensoussan, S. Chen and S. P. Sethi, Feedback Stackelberg solutions of infinite-horizon stochastic differential games,, forthcoming., ().   Google Scholar [7] A. Bensoussan, S. Chen and S. P. Sethi, The maximum principle for global solutions of stochastic Stackelberg differential games,, working paper., ().   Google Scholar [8] G. F. Cachon, Supply chain coordination with contracts,, in, (2003), 227.   Google Scholar [9] A. Chutani and S. P. Sethi, Cooperative advertising in a dynamic retail market oligopoly,, Dynamic Games and Applications, (2012).  doi: 10.1007/s13235-012-0053-8.  Google Scholar [10] A. Chutani and S. P. Sethi, Optimal advertising and pricing in a dynamic durable goods supply chain,, Journal of Optimization Theory and Applications, 154 (2012), 615.  doi: 10.1007/s10957-012-0034-5.  Google Scholar [11] E. Dockner, S. Jøgensen, N. V. Long and G. Sorger, "Differential Games in Economics and Management Science,", Cambridge University Press, (2000).  doi: 10.1017/CBO9780511805127.  Google Scholar [12] X. He, A. Krishnamoorthy, A. Prasad and S. P. Sethi, Retail competition and cooperative advertising,, Operations Research Letters, 39 (2011), 11.  doi: 10.1016/j.orl.2010.10.006.  Google Scholar [13] X. He, A. Krishnamoorthy, A. Prasad and S. P. Sethi, Co-Op advertising in dynamic retail oligopolies,, Decision Sciences, 43 (2012), 73.  doi: 10.1111/j.1540-5915.2011.00336.x.  Google Scholar [14] X. He, A. Prasad and S. P. Sethi, Cooperative advertising and pricing in a dynamic stochastic supply chain: feedback stackelberg strategies,, Production and Operations Management, 18 (2009), 78.   Google Scholar [15] X. He, A. Prasad, S. P. Sethi and G. J. Gutierrez, A survey of Stackelberg differential game models in supply chain and marketing channels,, J. Systems Science and Systems Engineering, 16 (2007), 385.  doi: 10.1007/s11518-007-5058-2.  Google Scholar [16] A. Krishnamoorthy, A. Prasad and S. P. Sethi, Optimal pricing and advertising in a durable-good duopoly,, European Journal of Operations Research, 200 (2010), 486.  doi: 10.1016/j.ejor.2009.01.003.  Google Scholar [17] G. Leitmann, On generalized Stackelberg strategies,, J. Optimization Theory and Applications, 26 (1978), 637.  doi: 10.1007/BF00933155.  Google Scholar [18] E. Pardoux and S. Tang, Forward-backward stochastic differential equations and quasilinear parabolic PDEs,, Probab. Theory Relat. Fields, 114 (1999), 123.  doi: 10.1007/s004409970001.  Google Scholar [19] A. Prasad, S. P. Sethi and P. A. Naik, Understanding the impact of churn in dynamic oligopoly markets,, Automatica, 48 (2012), 2882.  doi: 10.1016/j.automatica.2012.08.031.  Google Scholar [20] M. Simaan and J. B. Cruz, Jr., On the Stackelberg strategy in nonzero-sum games,, J. Optimization Theory and Applications, 11 (1973), 533.  doi: 10.1007/BF00935665.  Google Scholar [21] M. Simaan and J. B. Cruz, Jr., Additional aspects of the Stackelberg strategy in nonzero-sum games,, J. Optimization Theory and Applications, 11 (): 613.  doi: 10.1007/BF00935561.  Google Scholar [22] H. von Stackelberg, "Marktform und Gleichgewicht,", Springer, (1934).   Google Scholar [23] S. Tang, General linear quadratic optimal stochastic control problems with random coefficients: linear stochastic Hamilton systems and backward stochastic Riccati equations,, SIAM J. Control Optim., 42 (2003), 53.  doi: 10.1137/S0363012901387550.  Google Scholar [24] J. Yong, Linear forward-backward stochastic differential equations with random coefficients,, Probab. Theory Relat. Fields, 135 (2006), 53.  doi: 10.1007/s00440-005-0452-5.  Google Scholar

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References:
 [1] T. Başar, On the relative leadership property of Stackelberg strategies,, J. Optimization Theory and Applications, 11 (1973), 655.  doi: 10.1007/BF00935564.  Google Scholar [2] T. Başar and A. Haurie, Feedback equilibria in differential games with structural and modal uncertainties,, in, (1984), 163.   Google Scholar [3] T. Başar, A. Haurie and G. Ricci, On the dominance of capitalists' leadership in a feedback Stackelberg solution of a differential game model of capitalism,, J. Economic Dynamics and Control, 9 (1985), 101.  doi: 10.1016/0165-1889(85)90026-0.  Google Scholar [4] T. Başar and G. J. Olsder, "Dynamic Noncooperative Game Theory,", 2nd edition, (1995).   Google Scholar [5] T. Başar, A. Bensoussan and S. P. Sethi, Differential games with mixed leadership: the open-loop solution,, Applied Mathematics and Computation, 217 (2010), 972.  doi: 10.1016/j.amc.2010.01.048.  Google Scholar [6] A. Bensoussan, S. Chen and S. P. Sethi, Feedback Stackelberg solutions of infinite-horizon stochastic differential games,, forthcoming., ().   Google Scholar [7] A. Bensoussan, S. Chen and S. P. Sethi, The maximum principle for global solutions of stochastic Stackelberg differential games,, working paper., ().   Google Scholar [8] G. F. Cachon, Supply chain coordination with contracts,, in, (2003), 227.   Google Scholar [9] A. Chutani and S. P. Sethi, Cooperative advertising in a dynamic retail market oligopoly,, Dynamic Games and Applications, (2012).  doi: 10.1007/s13235-012-0053-8.  Google Scholar [10] A. Chutani and S. P. Sethi, Optimal advertising and pricing in a dynamic durable goods supply chain,, Journal of Optimization Theory and Applications, 154 (2012), 615.  doi: 10.1007/s10957-012-0034-5.  Google Scholar [11] E. Dockner, S. Jøgensen, N. V. Long and G. Sorger, "Differential Games in Economics and Management Science,", Cambridge University Press, (2000).  doi: 10.1017/CBO9780511805127.  Google Scholar [12] X. He, A. Krishnamoorthy, A. Prasad and S. P. Sethi, Retail competition and cooperative advertising,, Operations Research Letters, 39 (2011), 11.  doi: 10.1016/j.orl.2010.10.006.  Google Scholar [13] X. He, A. Krishnamoorthy, A. Prasad and S. P. Sethi, Co-Op advertising in dynamic retail oligopolies,, Decision Sciences, 43 (2012), 73.  doi: 10.1111/j.1540-5915.2011.00336.x.  Google Scholar [14] X. He, A. Prasad and S. P. Sethi, Cooperative advertising and pricing in a dynamic stochastic supply chain: feedback stackelberg strategies,, Production and Operations Management, 18 (2009), 78.   Google Scholar [15] X. He, A. Prasad, S. P. Sethi and G. J. Gutierrez, A survey of Stackelberg differential game models in supply chain and marketing channels,, J. Systems Science and Systems Engineering, 16 (2007), 385.  doi: 10.1007/s11518-007-5058-2.  Google Scholar [16] A. Krishnamoorthy, A. Prasad and S. P. Sethi, Optimal pricing and advertising in a durable-good duopoly,, European Journal of Operations Research, 200 (2010), 486.  doi: 10.1016/j.ejor.2009.01.003.  Google Scholar [17] G. Leitmann, On generalized Stackelberg strategies,, J. Optimization Theory and Applications, 26 (1978), 637.  doi: 10.1007/BF00933155.  Google Scholar [18] E. Pardoux and S. Tang, Forward-backward stochastic differential equations and quasilinear parabolic PDEs,, Probab. Theory Relat. Fields, 114 (1999), 123.  doi: 10.1007/s004409970001.  Google Scholar [19] A. Prasad, S. P. Sethi and P. A. Naik, Understanding the impact of churn in dynamic oligopoly markets,, Automatica, 48 (2012), 2882.  doi: 10.1016/j.automatica.2012.08.031.  Google Scholar [20] M. Simaan and J. B. Cruz, Jr., On the Stackelberg strategy in nonzero-sum games,, J. Optimization Theory and Applications, 11 (1973), 533.  doi: 10.1007/BF00935665.  Google Scholar [21] M. Simaan and J. B. Cruz, Jr., Additional aspects of the Stackelberg strategy in nonzero-sum games,, J. Optimization Theory and Applications, 11 (): 613.  doi: 10.1007/BF00935561.  Google Scholar [22] H. von Stackelberg, "Marktform und Gleichgewicht,", Springer, (1934).   Google Scholar [23] S. Tang, General linear quadratic optimal stochastic control problems with random coefficients: linear stochastic Hamilton systems and backward stochastic Riccati equations,, SIAM J. Control Optim., 42 (2003), 53.  doi: 10.1137/S0363012901387550.  Google Scholar [24] J. Yong, Linear forward-backward stochastic differential equations with random coefficients,, Probab. Theory Relat. Fields, 135 (2006), 53.  doi: 10.1007/s00440-005-0452-5.  Google Scholar
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