A Game-Theoretic Approach to Finding Market Equilibria for Automotive Design Under Environmental Regulation

Recent research has extended prior efforts to integrate firm-level objectives into engineering design optimization models by further enlarging the scope to investigate the effects of regulation on the design decisions of profit-seeking firms in competition. In particular, one study examined the effects of environmental policy on vehicle design decisions by integrating quantitative models of engineering performance, market demand, production cost and regulatory penalties in a joint optimization framework using game theory to model the effects of competition on design and pricing. Model complexity and the solution methods used to solve for market equilibria in prior research have led to a limitation where the prior approach is too computationally intensive to allow extensive parametric studies on the effects of policy changes on design. To address this issue, we present an alternative game-theoretic approach utilizing necessary and sufficient conditions with Nash conditions to find market equilibria in an oligopoly of automakers, and we use this approach to examine the resulting optimal design responses under various regulation scenarios.