Evaluating the strategic behavior of cement producers: An equilibrium problem with equilibrium constraints Articles uri icon

publication date

  • January 2018

start page

  • 717

end page

  • 731

issue

  • 2

volume

  • 264

international standard serial number (ISSN)

  • 0377-2217

electronic international standard serial number (EISSN)

  • 1872-6860

abstract

  • This paper investigates the equilibria reached by a number of strategic producers in the cement sector through a technological representation of the market. We present a bilevel model for each producer that characterizes its profit maximizing behavior. In the bilevel model, the upper-level problem of each producer is constrained by a lower-level market clearing problem representing cement trading and whose objective function corresponds to social welfare. Replacing the lower level problem by its optimality condition yields a Mathematical Program with Equilibrium Constraints (MPEC). Then, all strategic producers are jointly considered. Representing their interaction requires solving jointly the interrelated MPECs of all producers, which results in an Equilibrium Problem with Equilibrium Constraints (EPEC). A parametric analysis concerning cost, capacity and demand fluctuations has been conducted. Our analysis shows that the European cement sector is mature and has lost its competitiveness; African cement market can assume a prominent role in international markets in the coming future if investments in new and efficient capacity are carried out. Finally, the Far East will remain the reference exporter of cement at worldwide level. (C) 2017 Elsevier B.V. All rights reserved.

keywords

  • linear programming; cement industry; equilibrium problem with equilibrium constraints (EPEC); mixed-integer linear.programming (MILP)