Solving Quadratic Multi-Leader-Follower Games by Smoothing the Follower's Best Response

Abstract

We derive Nash equilibria for a class of quadratic multi-leader-follower games using the nonsmooth best response function. To overcome the challenge of nonsmoothness, we pursue a smoothing approach resulting in a reformulation as a smooth Nash equilibrium problem. The existence and uniqueness of solutions are proven for all smoothing parameters. Accumulation points of Nash equilibria exist for a decreasing sequence of these smoothing parameters and we show that these candidates fulfill the conditions of s-stationarity and are Nash equilibria to the multi-leader-follower game. Finally, we propose an update on the leader variables for efficient computation and numerically compare nonsmooth Newton and subgradient methods.