A game theoretic framework for strategic production planning

Abstract

A game theoretic framework for strategic refinery production planning is presented in which strategic planning problems are formulated as non-cooperative potential games whose solutions represent Nash equilibria. The potential game model takes the form of a nonconvex nonlinear program (NLP) or nonconvex mixed integer nonlinear program (MINLP). Tactical planning decisions are linked to strategic decision processes through a potential game structure derived from a Cournot oligopoly-form game in which multiple crude oil refineries supply several markets. The resulting production planning decisions are rational in a game theoretic sense and are robust to deviations in competitor strategies. These solutions are interpreted as mutual best responses yielding maximum profit in the competitive planning game. Case studies are presented which illustrate the utility of the game theoretic framework in the analysis of production planning problems in competitive scenarios, including competitor removal and capacity expansion.