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##### INOCS - 2019

Overall Objectives
Application Domains
New Software and Platforms
Bilateral Contracts and Grants with Industry
Partnerships and Cooperations
Bibliography

## Section: New Results

### Bilevel Programming

Pricing for Energy Management: Power systems face higher flexibility requirements from generation to consumption due to the increasing penetration of non-controllable distributed renewable energy. In this context, demand side management aims at reducing excessive load fluctuation and match the price of energy to their real cost for the grid. Pricing models for demand side management methods are traditionally used to control electricity demand. First, we proposed bilevel pricing models to explore the relationship between energy suppliers and customers who are connected to a smart grid. The smart grid technology allows customers to keep track of hourly prices and shift their demand accordingly, and allows the provider to observe the actual demand response to its pricing strategy. Moreover, we assumed that the smart grid optimizes the usage of a renewable energy generation source and a storage capacity. Results over a rolling horizon were obtained (Léonard Von Niederhausern PhD thesis [76]). Next, we considered four types of actors: furnishers sell electricity, local agents trade and consume energy, aggregators trade energy and provide energy to end-users, who consume it. This gives rise to three levels of optimization. The interaction between aggregators and their end-users is modeled with a bilevel program, and so is the interaction between furnishers, and local agents and aggregators. Since solving bilevel programs is difficult in itself, solving trilevel programs requires particular care. We proposed three possible approaches, two of them relying on a characterization of the intermediary optimization level [13], [76].

Finally, Time and-Level-of-Use is a recently proposed energy pricing scheme, designed for the residential sector and providing suppliers with robust guarantee on the consumption. We formulate the supplier decision as a bilevel, bi-objective problem optimizing for both financial loss and guarantee. A decomposition method is proposed, related to the optimal value transformation. It allows for the computation of an exact solution by finding possible Pareto optimal candidate solutions and then eliminating dominated ones. Numerical results on experimental residential power consumption data show the method effectively finds the optimal candidate solutions while optimizing costs only or incorporating risk aversion at the lower-level [38], [46].

Linear bilevel optimization: One of the most frequently used approaches to solve linear bilevel optimization problems consists in replacing the lower-level problem with its Karush–Kuhn–Tucker (KKT) conditions and by reformulating the KKT complementarity conditions using techniques from mixed-integer linear optimization. The latter step requires to determine some big-M constant in order to bound the lower level's dual feasible set such that no bilevel-optimal solution is cut off. In practice, heuristics are often used to find a big-M although it is known that these approaches may fail. In [69], we consider the hardness of two proxies for the above mentioned concept of a bilevel-correct big-M. First, we prove that verifying that a given big-M does not cut off any feasible vertex of the lower level’s dual polyhedron cannot be done in polynomial time unless P = NP. Second, we show that verifying that a given big-M does not cut off any optimal point of the lower level's dual problem (for any point in the projection of the high-point relaxation onto the leader’s decision space) is as hard as solving the original bilevel problem.

Market regulation: We proposed a bilevel programming model to study a problem of market regulation through government intervention. One of the main characteristics of the problem is that the government monopolizes the raw material in one industry, and competes in another industry with private firms for the production of commodities. Under this scheme, the government controls a state-owned firm to balance the market; that is, to minimize the difference between the produced and demanded commodities. On the other hand, a regulatory organism that coordinates private firms aims to maximize the total profit by deciding the amount of raw material bought from the state-owned firm. Two equivalent single-level reformulations are proposed to solve the problem. Additionally, three heuristic algorithms are designed to obtain good-quality solutions with low computational effort. Extensive computational experimentation is carried out to measure the efficiency of the proposed solution methodologies. A case study based on the Mexican petrochemical industry is presented. Additional instances generated from the case study are considered to validate the robustness of the proposed heuristic algorithms [28].

Product pricing: One of the main concerns in management and economic planning is to sell the right product to the right customer for the right price. Companies in retail and manufacturing employ pricing strategies to maximize their revenues. The Rank Pricing Problem considers a unit-demand model with unlimited supply and uniform budgets in which customers have a rank-buying behavior. Under these assumptions, the problem is first analyzed from the perspective of bilevel pricing models and formulated as a non linear bilevel program with multiple independent followers. We also present a direct non linear single level formulation. Two different linearizations of the models are carried out and two families of valid inequalities are obtained which, embedded in the formulations by implementing a branch-and-cut algorithm, allow us to tighten the upper bound given by the linear relaxation of the models. We show the efficiency of the formulations, the branch-and-cut algorithms and some preprocessing through extensive computational experiments [73].

Next in [68], we analyze a product pricing problem with single-minded customers, each interested in buying a bundle of products. The objective is to maximize the total revenue and we assume that supply is unlimited for all products. We contribute to a missing piece of literature by giving some mathematical formulations for this single-minded bundle pricing problem. We first present a mixed-integer nonlinear program with bilinear terms in the objective function and the constraints. By applying classical linearization techniques, we obtain two different mixed-integer linear programs. We then study the polyhedral structure of the linear formulations and obtain valid inequalities based on an RLT-like framework. We develop a Benders decomposition to project strong cuts from the tightest model onto the lighter models. We conclude this work with extensive numerical experiments to assess the quality of the mixed-integer linear formulations, as well as the performance of the cutting plane algorithms and the impact of the preprocessing on computation times.

Bilevel Minimum Spanning Tree Problem: Consider a graph $G$ whose edge set is partitioned into a set of red edges and a set of blue edges, and assume that red edges are weighted and contain a spanning tree of $G$. Then, the Bilevel Minimum Spanning Tree Problem (BMSTP) consists in pricing (i.e., weighting) the blue edges in such a way that the total weight of the blue edges selected in a minimum spanning tree of the resulting graph is maximized. We propose different mathematical formulations for the BMSTP based on the properties of the Minimum Spanning Tree Problem and the bilevel optimization. We establish a theoretical and empirical comparison between these new formulations and we also provide reinforcements that together with a proper formulation are able to solve medium to big size instances [26].

Bilevel programming models for location problems: First, we addressed a multi-product location problem in which a retail firm has several malls with a known location. A particular product comes in p types. Each mall has a limited capacity for products to be sold at that location, so the firm has to choose what products to sold at what mall. Furthermore, the firm can apply discrete levels of discount on the products. The objective of the firm is to find what products to sell at which mall, with what level of discount, so that its profit is maximized. Consumers are located in points of the region. Each consumer has a different set of acceptable products, and will purchase one of these, or none if it is not convenient for her. Consumers maximize their utility. The agents (firm and consumers) play a Stackelberg game, in which the firm is the leader and the customers the follower. Once the firm decides the products to sell at each mall and the possible discounts, consumers purchase (or not) one of their acceptable products wherever their utility is maximized. We model the problem using bilevel formulations, which are compared on known instances from the literature [74]. Second we studied a location problem of controversial facilities. On the one hand, a leader chooses among a number of fixed potential locations which ones to establish. On the second hand, one or several followers who, once the leader location facilities have been set, choose their location points in a continuous framework. The leader's goal is to maximize some proxy to the weighted distance to the follower's location points, while the follower(s) aim is to locate his location points as close as possible to the leader ones. We develop the bilevel location model for one follower and for any polyhedral distance, and we extend it for several followers and any so-called p-norm. We prove the NP-hardness of the problem and propose different mixed integer linear programming formulations. Moreover, we develop alternative Benders decomposition algorithms for the problem. Finally, we report some computational results comparing the formulations and the Benders decompositions on a set of instances [23].

Stackelberg games: First we analyzed general Stackelberg games (SGs) and Stackelberg security games (SSGs). SGs are hierarchical adversarial games where players select actions or strategies to optimize their payoffs in a sequential manner. SSGs are a type of SGs that arise in security applications, where the strategies of the player that acts first consist in protecting subsets of targets and the strategies of the followers consist in attacking one of the targets. We review existing mixed integer optimization formulations in both the general and the security setting and present new formulations for the the second one. We compare the SG formulations and the SSG formulations both from a theoretical and a computational point of view. We identify which formulations provide tighter linear relaxations and show that the strongest formulation for the security version is ideal in the case of one single attacker. Our computational experiments show that the new formulations can be solved in shorter times [18].

Second, we formulate a Stackelberg Security game that coordinates resources in a border patrol problem. In this security domain, resources from different precincts have to be paired to conduct patrols in the border due to logistic constraints. Given this structure the set of pure defender strategies is of exponential size. We describe the set of mixed strategies using a polynomial number of variables but exponentially many constraints that come from the matching polytope. We then include this description in a mixed integer formulation to compute the Strong Stackelberg Equilibrium efficiently with a branch and cut scheme. Since the optimal patrol solution is a probability distribution over the set of exponential size, we also introduce an efficient sampling method that can be used to deploy the security resources every shift. Our computational results evaluate the efficiency of the branch and cut scheme developed and the accuracy of the sampling method. We show the applicability of the methodology by solving a real world border patrol problem [15].

Third, in [39], we discuss the impact of fairness constraints in Stackelberg Security Games. Fairness constraints can be used to avoid discrimination at the moment of implementing police patrolling. We present two ways of modelling fairness constraints, one with a detailed description of the population and the other with labels. We discuss the implementability of these constraints. In the case that the constraints are not implementable we present models to retrieve pure strategies in a way that they are the closest in average to the set of fairness constraints.

Finally, in [65], we focus on Stackelberg equilibria for discounted stochastic games. We begin by formalizing the concept of Stationary Strong Stackelberg Equlibrium (SSSE) policies for such games. We provide classes of games where the SSSE exists, and we prove via counterexamples that SSSE does not exist in the general case. We define suitable dynamic programming operators whose fixed points are referred to as Fixed Point Equilibrium (FPE). We show that the FPE and SSSE coincide for a class of games with Myopic Follower Strategy. We provide numerical examples that shed light on the relationship between SSSE and FPE and the behavior of Value Iteration, Policy Iteration and Mathematical programming formulations for this problem. Finally, we present a security application to illustrate the solution concepts and the efficiency of the algorithms studied.