Decomposition algorithms for globally solving mathematical programs with affine equilibrium constraints

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A mathematical programming problem with affine equilibrium constraints (AMPEC) is a bilevel programming problem where the lower one is a parametric affine variational inequality. We formulate some classes of bilevel programming in forms of MPEC. Then we use a regularization technique to formulate the resulting problem as a mathematical program with an additional constraint defined by the difference of two convex functions (DC function). A main feature of this DC decomposition is that the second component depends upon only the parameter in the lower problem. This property allows us to develop branch-and-bound algorithms for globally solving AMPEC where the adaptive rectangular bisection takes place only in the space of the parameter. As an example, we use the proposed algorithm to solve a bilevel Nash-Cournot equilibrium market model. Computational results show the efficiency of the proposed algorithm.