An exact solution method for binary equilibrium problems with compensation and the power market uplift problem

摘要

Highlights?We propose a novel method to solve equilibrium problems with binary decision variables.?The approach is based on a new method to derive “shadow prices” in binary problems.?The trade-off between market efficiency and compensation payments is endogenous.?The model is applied to a non-cooperative unit-commitment power market problem.?The power market model can be solved as a mixed-binary linear problem.AbstractWe propose a novel method to find Nash equilibria in games with binary decision variables by including compensation payments and incentive-compatibility constraints from non-cooperative game theory directly into an optimization framework in lieu of using first-order conditions of a linearization, or relaxation of integrality condition