Competition of Gas Pipeline Projects: A Multi-Player Game of Timing

Brykalov, S.A., Golovina, O.N., & Kryazhimskiy, A.V. (2004). Competition of Gas Pipeline Projects: A Multi-Player Game of Timing. IIASA Interim Report. IIASA, Laxenburg, Austria: IR-04-025

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Abstract

We use game theory to construct a model of investment in gas pipeline projects competing for a regional gas market. The model is designed as a multi-player game with integral payoffs, in which times of entering the market act as players' strategies. For each player, we identify the location of player's best responses to strategies chosen by other players. On this basis, we reduce the original game to a game with a finite number of strategies for each player. We introduce a regularity condition and for a regular game of timing prove the existence of a Nash equilibrium. An application of this result to a symmetric game of timing allows us to give the entire description of the set of all Nash equilibrium points. Finally, we construct a finite algorithm for finding player's best responses and the Nash equilibrium points in the game. The presented approach can be used to analyze competition of large-scale technological and energy transportation projects in situations where the investment periods of sales and the appearance of every new supplier on the market drastically effects the market price.

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