Dynamic Games: Theory, Algorithms and Applications

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The objective of this research program is to develop mathematical models and efficient algorithms to solve practical problems in closed-loop supply chains, environmental management and dynamic pricing. All the problems under consideration share two features that make them dynamic games: they involve few economic agents (firms, countries) having interdependent payoffs; and they are inherently dynamic, i.e., the agents compete or cooperate repeatedly over time, and an accumulation process is present, e.g., production capacity or pollution stock. (i)Supply chains. Lack of coordination between the members of a supply chain leads to inefficiencies, i.e., lower profits for manufacturers and retailers and a lower consumer surplus. The objective of this research is to design mechanisms to eliminate these inefficiencies. Also, it aims at increasing (re)manufacturing with used parts and recycling in closed-loop supply chains. (ii)Environmental management. Despite alarming statements being made by scientists and policy makers regarding the urgency of dealing with global environmental issues, there is still no constraining international environmental agreement (IEA) on controlling emissions. This research aims to contribute to: (1) the design of IEAs, including the formation of an IEA between structurally different countries; (2) the development of incentive strategies to reduce emissions; and (3) the design of cooperative mechanisms using large-scale economic-environmental models. (iii)Dynamic pricing. The online retail industry has been booming for some time, with 10% annual growth over the last five years. E-commerce offers retailers the possibility of easily varying their prices over time (and by consumer). This project intends to bring strategic consumers into the analysis of competitive pricing. These consumers anticipate future drops in prices and can wait to purchase the product. By ignoring such a decision-making pattern, retailers may end up with a revenue loss of between 20 and 60%. This research also deals with pricing strategies for opaque goods, i.e., products whose attributes (e.g., the hotel name) are disclosed to the buyer only after the transaction has been completed. The conceptual contribution of this research is in developing existence and uniqueness equilibrium results in some classes of the dynamic games framework, which is a natural choice in order to account for uncertainty in the above-mentioned applications. At a computational level, the algorithms designed to solve the applied problems will be accessible to researchers working in varied areas. At an applied level, eliminating the inefficiencies in supply chains is of clear value to business and to scholars with an interest in mechanism design. Similarly, defining mechanisms for reducing pollution is of interest to researchers, policy makers and society in general. And finally, understanding dynamic pricing helps firms design suitable marketing and operations strategies.