Optimization

A Journal of Mathematical Programming and Operations Research

ISSN: 0233-1934 (Print) 1029-4945 (Online) Journal homepage: https://www.tandfonline.com/loi/gopt20

A best-response approach for equilibrium

selection in two-player generalized Nash
equilibrium problems

Axel Dreves

To cite this article: Axel Dreves (2019): A best-response approach for equilibrium
selection in two-player generalized Nash equilibrium problems, Optimization, DOI:
10.1080/02331934.2019.1646743

To link to this article: https://doi.org/10.1080/02331934.2019.1646743

Published online: 31 Jul 2019.

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OPTIMIZATION
https://doi.org/10.1080/02331934.2019.1646743

A best-response approach for equilibrium selection in

two-player generalized Nash equilibrium problems
Axel Dreves

Department of Aerospace Engineering, Universität der Bundeswehr München, Neubiberg, Germany

ABSTRACT ARTICLE HISTORY

In this paper, we propose a best-response approach to select Received 16 January 2019
an equilibrium in a two-player generalized Nash equilibrium Accepted 5 July 2019
problem. In our model we solve, at each of a finite number KEYWORDS
of time steps, two independent optimization problems. We Generalized Nash
prove that convergence of our Jacobi-type method, for the equilibrium problem;
number of time steps going to infinity, implies the selection of Jacobi-type method;
the same equilibrium as in a recently introduced continuous equilibrium selection;
equilibrium selection theory. Thus the presented approach is discrete approach
a different motivation for the existing equilibrium selection
AMS CLASSIFICATIONS
theory, and it can also be seen as a numerical method. We 49M25; 91A05; 91A10; 91A40
show convergence of our numerical scheme for some special
cases of generalized Nash equilibrium problems with linear
constraints and linear or quadratic cost functions.

1. Introduction
Generalized Nash equilibrium problems (GNEPs) were first considered in [1],
where their solutions were termed social equilibria. In allowing dependence of
the feasible sets of each player on the rivals’ strategies, GNEPs are a generaliza-
tion of the standard Nash equilibrium problem (NEP) introduced in [2]. For a
survey on GNEPs with a historical development and algorithms, we refer to [3,4].
It is known that GNEPs usually have infinitely many solutions, and it was shown
in [5] that the set of equilibria is generically a manifold if shared constraints are
present. In a generalized Nash equilibrium no player can improve his situation
through an unilateral change of his strategy. But if there is more than one equi-
librium, this rises the question which equilibrium the players will play. This is the
equilibrium selection problem and up to now there are only few approaches to
solve it. One can distinguish two main perspectives on the equilibrium selection
problem: either one defines additional properties the solution should have, or one
defines a process the players follow to find an equilibrium. A first attempt was the
introduction of the property to be a normalized Nash equilibrium by [6]. This is

CONTACT Axel Dreves axel.dreves@unibw.de

© 2019 Informa UK Limited, trading as Taylor & Francis Group

2 A. DREVES

defined for GNEPs with shared constraints. The normalized equilibria are char-
acterized by a given ratio between corresponding Lagrange multipliers and can
be interpreted in distributing the costs for the violation of shared constraints by
the given ratios. However, one has to define the ratios first. Further, the equilib-
ria are not scaling invariant, meaning that multiplying the cost functions of the
players by positive constants (which represents some uncertainty on the exact
cost function of the rivals) may change the normalized equilibria.
Clearly, a further approach is to compute all generalized Nash equilibria and
then define a criteria to select one of these, for example using the minimum
overall cost for all players. The main drawback is that computing all equilib-
ria is only possible for some special cases, for example if we have linear cost
functions and constraints, so called LGNEPs, that were introduced in [7], or
for some GNEPs with linear constraints and quadratic cost functions, that were
called affine GNEPs and discussed in [8]. For algorithms to compute all solu-
tions see [9,10], but note that these are usually computationally very expensive.
In transportation games, that are modelled as LGNEPs, the equilibrium selec-
tion problem was discussed in [11], by minimizing a cost function over the set of
equilibria.
For standard NEPs with finite strategy sets, a tracing procedure was devel-
oped in [12–14]. This procedure models the process of selecting an equilibrium
through parametrized problems, where the players find best-responses to their
current knowledge and their prior beliefs of the other players strategies. Inspired
by this approach, the recent paper [15] developed a tracing procedure for GNEPs,
that also models the process of finding a compromise between the players and
results in a generalized Nash equilibrium. Hence, this is a new concept for select-
ing a reasonable generalized Nash equilibrium out of the typically infinitely many
ones. The concept consists of three steps. First, each players favourite strategy
is computed, if he could dictate the game. Second, the players compute their
best-response to these favourite strategies of the rivals, which is the starting
point. Third, a continuous tracing procedure is performed, where the players
find best-responses on a combination of the current and the favourite strategies
of the others, with increasing weight on the current strategies. Finally the limit-
ing points of this procedure are the selected equilibria. Dreves [15, Theorem 5.2]
shows existence and uniqueness of the selected equilibrium under a number of
assumptions. A first numerical realization of this approach is the semismooth
tracing algorithm from [16], which is a path-following algorithm.
In this paper we consider only the special case of two-player GNEPs. We will
model the process for finding an equilibrium through a finite number of nego-
tiation rounds. We begin at the same starting point as the continuous approach
from above, a best-response on the other players favourite strategies. Then, at
each round the players give best-responses to a convex combination of the cur-
rent, which is the latest known, and the favourite strategy of the opponent, with
increasing weight on the current strategy. In this approach the players solve
 OPTIMIZATION 3

their optimization problems independently at each round and we do not have

to compute a generalized Nash equilibrium, which requires the solution of cou-
pled optimization problems. This results in a Jacobi-type method for solving a
GNEP with a finite number of rounds. Usually, the result of this negotiation is
not a generalized Nash equilibrium, and thus we consider the sequence of solu-
tions for the number of negotiation rounds going to infinity. We show, that if
this sequence converges for the number of rounds going to infinity, it selects the
same equilibrium as the continuous approach from [15]. Let us recall from [15]
that the selection process chooses a generalized Nash equilibrium that is scaling
invariant, and furthermore the result of a continuous procedure to find a compro-
mise. The main result in this paper is that the best-response approach strengthens
the recently presented equilibrium selection procedure by a different modelling
resulting in the same solution. Hence, the approach is not only a way to compute
one generalized Nash equilibrium. It is an intuitive model for finding a compro-
mise between players, and it computes a scaling invariant equilibrium, that is the
same as the one from the continuous approach in [15].
To prove convergence of the resulting numerical scheme is challenging. As
mentioned in [3], decomposition methods like Jacobi-type or Gauss–Seidel-type
methods are popular for GNEPs, since they are easy to implement. But, they are
mainly heuristic, since convergence proofs are not known, or require restric-
tive assumptions. Typically, these methods find a solution, if they produce a
convergent sequence. If the sequence only has cluster points, these are not nec-
essarily generalized Nash equilibria. In [17] one can find convergence proofs for
a Gauss–Seidel method in the two-player case and of a regularized version in
the general case, which works for the GNEP subclass of potential games. In our
approach we will not use these convergence results, since we obtain last iterates of
a finite number of Jacobi-type steps, and are interested in the limit of the sequence
of these values.
In the next section, we introduce our notation and formally state our best-
response approach for equilibrium selection in two-player GNEPs. In Section 3
we prove, under suitable assumptions, that convergence of the best-response
method implies, that we select the same equilibrium as the continuous approach
from [15]. Further, we present a counter example where the method diverges.
In Section 4, we show convergence of our method, if we have a suitable rep-
resentation of the best-response. In the subsections we discuss some classes of
GNEPs with linear constraints and linear or quadratic cost functions, where
we can observe this. In Section 5, we present several examples where our new
concept can be applied. Finally, we conclude with Section 6.

2. The discrete best-response approach

In this section, we first present our notation and problem formulation, before
we state our best-response approach. The problem under consideration is the
4 A. DREVES

following: Let n := n1 + n2 , θν : Rnν × Rn−nν → R be cost functions, and g ν :

Rnν × Rn−nν → Rmν be constraint functions for ν = 1, 2. Then, we consider the
GNEP

min θ1 (x1 , x2 ) s.t. g 1 (x1 , x2 ) ≤ 0,

x1

min θ2 (x2 , x1 ) s.t. g 2 (x2 , x1 ) ≤ 0, (GNEP(1))

x2

i.e. both players try to minimize their cost function that may depend on the oppo-
nents strategy, subject to their constraints that may, in contrast to standard Nash
equilibrium problems, also depend on the opponents strategy. A generalized
Nash equilibrium is a point x = (x1 , x2 ) that simultaneously solves both opti-
mization problems in (GNEP(1)). At a generalized Nash equilibrium no player
can improve by an unilateral strategy change. Since there is usually more than
one generalized Nash equilibrium, one requires an equilibrium selection theory.
Following the solution concept from [15], we compute the favourite strate-
gies for both players as solutions, (z1 , w2 ) and (w1 , z2 ), respectively, of the two
independent optimization problems

min θ1 (x1 , x2 ) s.t. g 1 (x1 , x2 ) ≤ 0, g 2 (x2 , x1 ) ≤ 0, (1)

(x1 ,x2 )

min θ2 (x2 , x1 ) s.t. g 1 (x1 , x2 ) ≤ 0, g 2 (x2 , x1 ) ≤ 0. (2)

(x1 ,x2 )

For the rest of the solution process only z1 and z2 are required, and we assume
that each game under consideration has unique solutions z1 and z2 . A sufficient
condition for this would be strong convexity of the cost functions, and closed and
convex feasible sets in (1) and (2). In the next step, we compute the players best-
response on these favourite strategies by solving the two uncoupled optimization
problems

min θ1 (x1 , z2 ) s.t. g 1 (x1 , z2 ) ≤ 0,

x1

min θ2 (x2 , z1 ) s.t. g 2 (x2 , z1 ) ≤ 0. (GNEP(0))

x2

We denote its solution by x(0) = (x1 (0), x2 (0)). The tracing procedure proposed
in [15] starts at x(0), and then finds for t ∈]0, 1[ a generalized Nash equilibrium
x(t) as solution of

min θ1 (x1 , tx2 + (1 − t)z2 ) s.t. g 1 (x1 , tx2 + (1 − t)z2 ) ≤ 0,

x1

min θ2 (x2 , tx1 + (1 − t)z1 ) s.t. g 2 (x2 , tx1 + (1 − t)z1 ) ≤ 0. (GNEP(t))

x2

As we can see by setting t = 0 and t = 1, (GNEP(t)) is the above defined

(GNEP(0)) and (GNEP(1)), respectively. By SOL(t) we denote the set of all gen-
eralized Nash equilibria of (GNEP(t)). Under suitable assumptions, we obtain
 OPTIMIZATION 5

existence and uniqueness of the solution, and we can define a continuous solu-
tion path x(t) for t ∈ [0, 1[; see [15, Theorem 5.2]. The limiting point limt→1 x(t)
is a generalized Nash equilibrium of (GNEP(1)).
In this continuous approach, the players have to solve a GNEP at every time
t ∈]0, 1[. The following Discrete Best-Response Approach avoids this. Assume
we have S rounds for finding a solution. We divide the time interval [0, 1] into S
equidistant sub-intervals, thus getting the time points
k
tk = for k = 0, . . . , S.
S
At time step tk , the strategy of player ν is the best-response on a convex combi-
nation of the last strategy of the rival and his favourite solution. This results in
the following approach for solving a GNEP.
Discrete Best-Response Approach

(S.1) Solve (1) and (2) to obtain z = (z1 , z2 ) ∈ Rn1 × Rn2 .

(S.2) Compute x(0) as solution of (GNEP(0)) and set

x0:S := x(0).

(S.3) For all k = 0, . . . , S − 1 compute a solution x(k+1):S = (x(k+1):S

1 2
, x(k+1):S ) of
the following two uncoupled optimization problems

min θ1 (x1 , tk+1 xk:S

2
+ (1 − tk+1 )z2 )
x1

s.t. g 1 (x1 , tk+1 xk:S

2
+ (1 − tk+1 )z2 ) ≤ 0, (3)
min θ2 (x2 , tk+1 xk:S
1
+ (1 − tk+1 )z1 )
x2

s.t. g 2 (x2 , tk+1 xk:S

1
+ (1 − tk+1 )z1 ) ≤ 0. (4)

We apply this approach only to GNEPs, where z = (z1 , z2 ) is unique, and

where each player has a unique best-response on each of the rival’s strategies.
Then, the Discrete Best-Response Approach is well-defined. It defines a finite
sequence of S+1 points {xk:S } for k = 0, . . . , S. Now, we are interested in the limit
of the sequence {xS:S } for S → ∞, if it exists. We would like to stress that the two
optimization problems can be solved in parallel, since they are in each negotiation
round k uncoupled.
Let us comment on sufficient conditions for the approach to be well-defined: if
the feasible sets are nonempty, we get existence of the best-responses from conti-
nuity of the cost functions and compactness of the feasible sets. The uniqueness
of the best-response can be guaranteed if we have strong convexity in the players’
variables.
Nonemptyness of the feasible sets is much more involved. In step (S.2) this
always holds, since the points (w1 , z2 ) and (z1 , w2 ) from the solution of (1) and (2)
6 A. DREVES

are assumed to be feasible for (GNEP(0)). But the following example shows, that
for t1 our feasible sets may become empty.

Example 2.1: Consider a GNEP with non-shared constraints defined by

min (x1 − 1)2 + (x1 − x2 )2 s.t. 0 ≤ x1 , x1 + x2 ≤ 1,

x1

min (x2 − 2)2 s.t. x1 ≤ x2 .

x2

Here we obtain (z1 , w2 ) = ( 12 , 12 ) and (w1 , z2 ) = (0, 1), respectively. Next, we can
compute x0:S = (0, 2). Now, for t1 > 0, the feasible set of the first player becomes
empty, since we have

0 ≤ x1 and x1 + 2t1 + (1 − t1 ) ≤ 1 ⇔ 0 ≤ x1 ≤ −t1 .

As we have seen, in general we cannot expect the feasible sets to be nonempty.

But we can shown this for a subclass of GNEPs, namely jointly convex GNEPs
(also known as GNEPs with shared convex constraints), where we have g 1 ≡ g 2
and a common closed and convex feasible set

X := {(y1 , y2 ) ∈ Rn1 × Rn2 | g 1 (y1 , y2 ) ≤ 0}.

Then, the feasible sets of the optimization problems (3), (4) can be written as

2
X1 (tk+1 xk:S + (1 − tk+1 )z2 ) := {y1 ∈ Rn1 | (y1 , tk+1 xk:S
2
+ (1 − tk+1 )z2 ) ∈ X},
1
X2 (tk+1 xk:S + (1 − tk+1 )z1 ) := {y2 ∈ Rn2 | (tk+1 xk:S
1
+ (1 − tk+1 )z1 , y2 ) ∈ X},

respectively.

Lemma 2.2: Assume we have a jointly convex GNEP, and the functions
θν (·, x−ν ), ν = 1, 2 are convex, i.e. player convexity holds. Then the feasible sets

2
X1 (tk+1 xk:S + (1 − tk+1 )z2 ) and 1
X2 (tk+1 xk:S + (1 − tk+1 )z1 )

of (3) and (4) are nonempty for all k = 0, . . . , S − 1.

Proof: By the assumed player convexity and the common closed and convex
set, we can always solve (3) and (4), if the feasible sets are nonempty. We gen-
erally assume that (1) and (2) have solutions (z1 , w2 ) ∈ X and (w1 , z2 ) ∈ X,
respectively. Hence, x0:S is well-defined, since the feasible sets in (GNEP(0))
contain w1 ∈ X1 (z2 ) and w2 ∈ X2 (z1 ), respectively. The solution x0:S satisfies
 OPTIMIZATION 7

(x0:S
1 , z 2 ) ∈ X and (z 1 , x2 ) ∈ X. Convexity of X implies
0:S
1
(1 − t1 )(x0:S , z2 ) + t1 (z1 , x0:S
2
)∈X
1
⇔ (1 − t1 )x0:S + t1 z1 ∈ X1 (t1 x0:S
2
+ (1 − t1 )z2 ),
(1 − t1 )(z1 , x0:S
2 1
) + t1 (x0:S , z2 ) ∈ X
2
⇔ (1 − t1 )x0:S + t1 z2 ∈ X2 (t1 x0:S
1
+ (1 − t1 )z1 ).

Thus, our assertion holds for k = 0. The rest of the proof is by induction. Assume
the assertion holds for 0, . . . , k for some k ∈ N0 with k ≤ S − 2. Then, we can
solve (3) and (4) for k, and obtain a solution xk+1:S , with (x(k+1):S 1 2
, tk+1 xk:S
+ (1 − tk+1 )z2 ) ∈ X and (tk+1 xk:S 1 + (1 − t
k+1 )z , x(k+1):S ) ∈ X. Exploiting
1 2
1 , z 2 ) ∈ X and the convexity of X, we get
(x0:S
1
(1 − tk+2 )(x0:S , z2 ) + tk+2 (tk+1 xk:S
1
+ (1 − tk+1 )z1 , x(k+1):S
2
)∈X
1 1
⇔ (1 − tk+2 )x0:S + tk+2 (tk+1 xk:S + (1 − tk+1 )z1 )
2
∈ X1 (tk+2 x(k+1):S + (1 − tk+2 )z2 ).

Similarly, with (z1 , x0:S

2 ) ∈ X, we obtain by convexity of X

(1 − tk+2 )(z1 , x0:S

2 1
) + tk+2 (x(k+1):S 2
, tk+1 xk:S + (1 − tk+1 )z2 ) ∈ X
2 2
⇔ (1 − tk+2 )x0:S + tk+2 (tk+1 xk:S + (1 − tk+1 )z2 )
1
∈ X2 (tk+2 x(k+1):S + (1 − tk+2 )z1 ).

This shows our assertion for k + 1, and completes the proof. 

Remark 2.1: In order to generalize the approach on more than two players, one
has to find an adequate starting point. Following [15], one can use the favourite
strategies for all players ν = 1, . . . , N, i.e. the solutions z(ν) of the problems

min θν (z) s.t. g μ (z) ≤ 0 ∀ μ = 1, . . . , N.

z

Now, since for different players ν = μ we usually have z(ν) = z(μ), we cannot
give a best-response on a single strategy as in the two-player case. Here, we have
to somehow respond to all the other players, and [15] suggests to respond to
that strategy resulting in the highest costs. Hence, we can solve in the Discrete
Best-Response Approach for all players ν the optimization problems
−ν
min
ν
max θν (xν , tk+1 xk:S + (1 − tk+1 )z(μ)−ν ))
x μ=ν
−ν
s.t. max g ν (xν , tk+1 xk:S + (1 − tk+1 )z(μ)−ν )) ≤ 0.
μ=ν

If one uses these nonsmooth functions, the following convergence theory can-
not be used. In order to avoid the use of nonsmooth functions, [15] suggests to
8 A. DREVES

use a smoothed version of these maximum functions. This, however, results in

a much more complicated notation and therefore the paper focuses on the two-
player case only. Note that there are also further technical difficulties, because
in contrast to the two-player case, the N-player case can result in empty feasi-
ble sets for (GNEP(0)). For an example, even having linear constraints, we refer
to [15]. However, if one has nonempty feasible sets, and uses the starting point
and smoothed best-response concept as stated above, one can use the Discrete
Best-Response Approach also for the case of more than two players.

3. Convergence properties
In this section we will prove a connection between the limit limS→∞ xS:S and the
limiting point limt→∞ x(t) = x(1). We will make the following assumptions on
our GNEP:

(A1) Player convexity is satisfied for (GNEP(1)), i.e. the cost functions θν (·, x−ν )
and the constraint functions giν (·, x−ν ), ν = 1, 2, i = 1, . . . , mν , are convex
for every fixed x−ν ∈ Rn−nν .
(A2) All cost functions θν and all constraint functions giν are analytic functions
for ν = 1, 2.
(A3) There is a t̄ ∈ [0, 1[, such that for all t ∈ [t̄, 1] any standard constraint
qualification holds for each players’ problem in (GNEP(t)) for all rival
strategies.
(A4) There is a t̄ ∈ [0, 1[ such that the solution set SOL(t) of (GNEP(t)) is
nonempty for all t ∈ [t̄, 1].

For a discussion on constraint qualifications for GNEPs, we refer the inter-

ested reader to the recent paper [18]. One example of a standard constraint
qualification is the player linear independence constraint qualification (player
LICQ), where the gradients of the active constraints have to be linear inde-
pendent. Another one is a Slater condition, requiring the existence of a strict
interior point. We will exploit the concatenated Karush Kuhn Tucker (KKT)
system in the following. Hence, let us define the function F : Rn × Rm1 +m2 ×
[0, 1] → Rn by
⎛ ⎞

m1
⎜∇x1 θ1 (x1 , tx2 + (1 − t)z2 ) + λ1i ∇x1 gi1 (x1 , tx2 + (1 − t)z2 )⎟
⎜ ⎟
⎜ i=1 ⎟
F(x, λ, t) := ⎜ ⎟.
⎜ m2 ⎟
⎝∇ 2 θ (x2 , tx1 + (1 − t)z1 ) + λ 2
∇ 2 g 2 2
(x , tx 1
+ (1 − t)z 1 ⎠
)
x 2 i x i
i=1

Since under the above assumptions the KKT conditions of (GNEP(t)) are nec-
essary and sufficient optimality conditions, we can find a t̄ ∈ [0, 1[ such that for
 OPTIMIZATION 9

any t ∈ [t̄, 1] and x(t) ∈ SOL(t) multipliers λ(t) = (λ1 (t), λ2 (t)) ∈ Rm1 +m2 exist
such that
0 = F(x(t), λ(t), t),
0 = min{λ1 (t), −g 1 (x1 (t), tx2 (t) + (1 − t)z2 )},
0 = min{λ2 (t), −g 2 (x2 (t), tx1 (t) + (1 − t)z1 )}.
We use the following residual function, where · always denotes the Euclidean
norm
r(x, λ, t) := F(x, λ, t) + max{0, −λ}
+ max{0, g 1 (x1 , tx2 + (1 − t)z2 )}
+ max{0, g 2 (x2 , tx1 + (1 − t)z1 )}

+ (λ1 ) g 1 (x1 , tx2 + (1 − t)z2 ) + (λ2 ) g 2 (x2 , tx1 + (1 − t)z1 ) .

Also for our Discrete Best-Response Approach the KKT conditions for (3) and
(4) are necessary and sufficient if the above assumptions hold. In the following
we denote Lagrange multipliers corresponding to xk:S by λk:S = (λ1k:S , λ2k:S ). Using
the function F̃ : Rn × Rn × Rm1 +m2 × [0, 1] → Rn , defined by
F̃(x, y, λ, t)
⎛ ⎞

m1
1 2 2 1
⎜∇x1 θ1 (x , ty + (1 − t)z ) + λ ∇x1 gi1 (x1 , ty2
+ (1 − t)z )⎟ 2
⎜ ⎟
⎜ i=1 ⎟
:= ⎜ ⎟,
⎜ m2 ⎟
⎝∇ 2 θ (x2 , ty1 + (1 − t)z1 ) +
x 2 λ2 ∇x2 gi2 (x2 , ty1 + (1 − t)z1 )⎠
i=1

the common KKT conditions for the optimization problems (3) and (4) are
equivalent to
0 = F̃(x(k+1):S , xk:S , λ(k+1):S , tk+1 ) (5)
0 = max{0, −λ(k+1):S } (6)
0 = max{0, g 1 (x(k+1):S
1 2
, tk+1 xk:S + (1 − tk+1 )z2 )} (7)
0 = max{0, g 2 (x(k+1):S
2 1
, tk+1 xk:S + (1 − tk+1 )z1 )} (8)
0 = (λ1(k+1):S ) g 1 (x(k+1):S
1 2
, tk+1 xk:S + (1 − tk+1 )z2 ) (9)
0 = (λ2(k+1):S ) g 2 (x(k+1):S
2 1
, tk+1 xk:S + (1 − tk+1 )z1 ) (10)
We will use the distance function defined by
dist(x, S) := min x − y .
y∈S

Now we can prove the following convergence theorem:

10 A. DREVES

Theorem 3.1: Assume (A1)–(A4), all elements of the sequences {xk:S } are con-
tained in a bounded set, and there exist corresponding bounded sequences of mul-
tipliers {λk:S }. Then, x(k+1):S − xk:S → 0 implies dist(x(k+1):S , SOL(tk+1 )) → 0
for S → ∞ and k/S ≥ t̄.

Proof: By the boundedness assumptions we can define a compact set that con-
tains the sequences {xk:S }, {λk:S }. Further, by (A4) SOL(tk+1 ) is nonempty. Thus,
we can apply the global error bound condition for KKT systems of analytic
functions from [19, Theorem 5.1] to obtain constants τ , γ > 0 such that

dist(x(k+1):S , SOL(tk+1 ))
≤ τ r(x(k+1):S , λ(k+1):S , tk+1 )γ

=τ F(x(k+1):S , λ(k+1):S , tk+1 ) + max{0, −λ(k+1):S }

+ max{0, g 1 (x(k+1):S
1 2
, tk+1 x(k+1):S + (1 − tk+1 )z2 )}
+ max{0, g 2 (x(k+1):S
2 1
, tk+1 x(k+1):S + (1 − tk+1 )z1 )}
+ |(λ1(k+1):S ) g 1 (x(k+1):S
1 2
, tk+1 x(k+1):S + (1 − tk+1 )z2 )|
γ
+ |(λ2(k+1):S ) g 2 (x(k+1):S
2 1
, tk+1 x(k+1):S + (1 − tk+1 )z1 )| .

To estimate these terms, we can use the KKT conditions (5)–(10), boundedness
of the sequence of multipliers, and Lipschitz continuity of the involved analytical
functions. With constants Ci > 0, i = 1, . . . , 5 we get in detail:

F(x(k+1):S , λ(k+1):S , tk+1 )

= F̃(x(k+1):S , x(k+1):S , λ(k+1):S , tk+1 )
(5)
= F̃(x(k+1):S , x(k+1):S , λ(k+1):S , tk+1 ) − F̃(x(k+1):S , xk:S , λ(k+1):S , tk+1 )
≤ C1 x(k+1):S − xk:S .

Moreover, we have
(6)
max{0, −λ(k+1):S } = 0.
Lipschitz continuity of the maximum function and the constraint functions
implies

max{0, g 1 (x(k+1):S
1 2
, tk+1 x(k+1):S + (1 − tk+1 )z2 )}
(7)
= max{0, g 1 (x(k+1):S
1 2
, tk+1 x(k+1):S + (1 − tk+1 )z2 )}
− max{0, g 1 (x(k+1):S
1 2
, tk+1 xk:S + (1 − tk+1 )z2 )}
≤ C2 x(k+1):S − xk:S .
 OPTIMIZATION 11

Analogously, we get

(8)
max{0, g 2 (x(k+1):S
2 1
, tk+1 x(k+1):S + (1 − tk+1 )z1 )} ≤ C3 x(k+1):S − xk:S .

Using once again boundedness of the sequence of multipliers and Lipschitz

continuity of the constraint functions, we get

|(λ1(k+1):S ) g 1 (x(k+1):S
1 2
, tk+1 x(k+1):S + (1 − tk+1 )z2 )|
(9)
= (λ1(k+1):S ) g 1 (x(k+1):S
1 2
, tk+1 x(k+1):S + (1 − tk+1 )z2 )

−g 1 (x(k+1):S
1 2
, tk+1 xk:S + (1 − tk+1 )z2 )

≤ C4 x(k+1):S − xk:S .

Analogously, we also have

(10)
|(λ2(k+1):S ) g 2 (x(k+1):S
2 1
, tk+1 x(k+1):S + (1 − tk+1 )z1 )| ≤ C5 x(k+1):S − xk:S .

With the constant C := τ ( 5 γ

i=1 Ci ) we have shown
γ
dist(x(k+1):S , SOL(tk+1 )) ≤ C x(k+1):S − xk:S .

Therefore, x(k+1):S − xk:S → 0 implies dist(x(k+1):S , SOL(tk+1 )) → 0 for

S → ∞ and completes the proof. 

Let us mention that if SOL(tk+1 ) is single valued, dist(x(k+1):S ,

SOL(tk+1 )) → 0 implies convergence of the sequence {x(k+1):S } to x((k + 1)/S).
In [15, Theorem 5.2] it was shown that, under suitable assumptions (including
(A1)–(A3) from above), there is a unique continuous solution path x(t) for all
t ∈ [0, 1), whose unique limit point x(1) := limt↑1 x(t) selects a reasonable gen-
eralized Nash equilibrium for (GNEP(1)). If we use our best-response method
as a numerical method to follow x(t), Theorem 3.1 suggests to use the quantity
x(k+1):S − xk:S to check if we are close to the solution path. If this quantity is
going to zero, we are close to the solution path x(tk+1 ) at tk+1 = (k + 1)/S. As a
corollary of Theorem 3.1 we obtain, that convergence of the sequence {x(S−1):S }
for S → ∞ implies that its limiting point is x(1). We formally state this in the
following corollary.

Corollary 3.2: Let the assumptions of [15, Theorem 5.2] hold. If the sequence
{x(S−1):S } converges and there exists a bounded sequence of multipliers {λ(S−1):S },
then the limiting point is
lim x(S−1):S = x(1).
S→∞
12 A. DREVES

Proof: By [15, Theorem 5.2] we have {x(t)} = SOL(t) for all t ∈ [0, 1[ and x(t) is
continuous on [0, 1]. Convergence of the sequence {x(S−1):S } for S → ∞ implies

lim x(2S−2):2S − x(2S−1):2S = 0.

S→∞

Hence, Theorem 3.1 yields

    
S−1 S−1
x(S−1):S − x = dist x(S−1):S , SOL → 0.
S S

Continuity of x(t) for t → 1 proves that

 
S−1
lim x(S−1):S = lim x = x(1). 
S→∞ S→∞ S

By this corollary, the Discrete Best-Response Approach selects the solution

of (GNEP(1)) that was suggested and motivated in the continuous approach in
[15]. Thus, the solution is a scaling invariant generalized Nash equilibrium, i.e.
if we multiply the cost functions by some positive constants, the computed equi-
librium stays the same. By this, the players do not need knowledge of the exact
cost functions of the other players. Further, we now have in the two-player case
two different motivations to select the equilibrium x(1). First, the continuous
approach of [15], which is a continuous model for finding a compromise between
the players. Second, the Discrete Best-Response Approach, which models the
compromise finding through a finite number of negotiation rounds, and consid-
ers the limit for the number of rounds going to infinity. Considering some finite
number of negotiation rounds seems to be an intuitive procedure to compute an
approximate solution, and in contrast to the semismooth tracing algorithm pro-
posed in [16], we do not solve a GNEP at every time step, but the players solve
independent optimization problems.
The main assumption in Corollary 3.2 is the convergence of the sequence
{x(S−1):S }. However, this assumption may fail for some GNEPs, as the follow-
ing example shows. We discuss a standard Nash game with a unique continuous
solution path and even a unique Nash equilibrium of the original game.

Example 3.3: Let us consider the two-player standard Nash game:

1 2
min x + 2(x1 + 1)x2 s.t. x1 ∈ [−1, 1],
x1 2 1
1
min x22 − 5(x2 + 1)x1 s.t. x2 ∈ [−1, 1].
x2 2

For this game, one can check that all assumptions of [15, Theorem 5.2] are satis-
fied, implying the existence of a unique continuous solution path x(t). We have
 OPTIMIZATION 13

Figure 1. Numerical solution of Example 3.3 for S = 1000.

z = (1, 1) and (GNEP(t)) is given by

1 2
min x + 2(x1 + 1)(tx2 + (1 − t)) s.t. x1 ∈ [−1, 1],
x1 2 1
1
min x22 − 5(x2 + 1)(tx1 + (1 − t)) s.t. x2 ∈ [−1, 1].
x2 2

It has the unique solution

⎧
⎪
⎪ (−1, 1) for 0 ≤ t ≤ 0.4,
⎪
⎨
x(t) =  (−1, 5 − 10t) for 0.4 ≤ t ≤ 0.5,
⎪ − + 2 ) 5(1 − 3t + 2t 2 ) 
⎪
⎪ 2(−1 4t 5t
⎩ , for 0.5 ≤ t ≤ 1.
1 + 10t 2 1 + 10t 2
Denoting by PM (x) the projection of x on the set M, we get
2 1
x(k+1):S = (P[−1,1] (2tk+1 − 2 − 2tk+1 xk:S ), P[−1,1] (5 − 5tk+1 + 5tk+1 xk:S )).

By a technical proof we can show that the sequence {xk:S } has, for S → ∞, four
accumulation points in the four corners of the common feasible square, and this
can also be observed numerically, see Figure 1, where we used S = 1000. Here,
we follow the solution path until t = 0.5, but then we deviate to the four corners.
Further, the sequence of multipliers has four accumulation points and stays
bounded. None of our computed accumulation points is a solution of the orig-
inal GNEP, and they are in particular all different from x(1) = (0, 0). Hence,
14 A. DREVES

we cannot drop the convergence assumption of {x(S−1):S } in Corollary 3.2 or

x(k+1):S − xk:S → 0 in Theorem 3.1.

4. Applications
Here we will first prove that we can satisfy the convergence conditions of
Theorem 3.1, if we have a suitable recursion formula. Then, we will show that
for GNEPs with linear cost and constraint functions (LGNEPs) and for some
with linear constraint and quadratic cost functions (LQGNEPs) we obtain this
recursion formula.
Let a t̄ ∈ [0, 1[ be given, and let K < S be the smallest integer such that t̄ ≤ K/S.
Further, let xK:S be the result of the first K iterations of our best-response process.
Let a matrix M ∈ Rn×n and a vector w ∈ Rn be given. Assume that our solution
procedure for S steps continues the iteration process with

x(k+1):S = tk+1 M(xk:S − z) + w for k = K, . . . , S − 1. (11)

In this situation, we can prove the convergence condition of Theorem 3.1 holds,
if M satisfies some boundedness assumption.

Lemma 4.1: Assume a GNEP with bounded feasible set, and let (11) hold. If there
exists a constant c > 0 such that M j ≤ c for all j ∈ N, we have

lim xS:S − x(S−1):S = 0.

S→∞

Proof: By definition we recursively obtain

xS:S − x(S−1):S = tS−1 M(x(S−1):S − x(S−2):S ) + (tS − tS−1 )M(x(S−1):S − z)

S−1 1
= M(x(S−1):S − x(S−2):S ) + M(x(S−1):S − z)
S S
(S − 1)(S − 2) 2
= M (x(S−2):S − x(S−3):S )
S2
S−1 1
+ 2 M 2 (x(S−2):S − z) + M(x(S−1):S − z)
S S
(S − 1)! S−K−1
= M (x(K+1):S − xK:S )
K!SS−1−K
S−1
(S − 1)! S−i
+ S−i
M (xi:S − z)
i=K+1
i!S
(S − 1)! S−K−1
= M (x(K+1):S − xK:S )
K!SS−1−K
S!  Si S−i
S−1
+ S+1 M (xi:S − z).
S i=K+1
i!
 OPTIMIZATION 15

By assumption we have a c > 0, such that M j ≤ c for all j ∈ N. Since the feasible
set of the GNEP is assumed to be bounded, we get the existence of a constant
c1 > 0, such that xj:S − z ≤ c1 for all j > K and x(K+1):S − xK:S ≤ c1 . With
c2 := c c1 we obtain

S!  Si
S−1
(S − 1)!
xS:S − x(S−1):S ≤ c2 + c2 S+1
K!SS−1−K S i=K+1
i!
 
(S − 1)! S!
≤ c2 S−1−K
+ S+1 eS .
K!S S
The first term vanishes in the limit, since
(S − 1)!
lim = 0.
S→∞ K!SS−1−K
For the second term, we use the error bound for Stirling’s formula; see [20]. There
we have for all S ∈ N
√ SS
S! ≤ 2πS S e1/12S .
e
This yields
√
S! S 2π
S+1
e ≤ √ e1/12S ,
S S
which vanishes for S → ∞. Together we have shown
lim xS:S − x(S−1):S = 0. 
S→∞

Let us denote by limt→1 SOL(t) the set of all limiting points of sequences
of solutions of (GNEP(t)) for t → 1. If our GNEP satisfies (A4) and has a
bounded feasible set, limt→1 SOL(t) contains at least one element. If the set is
single-valued, we get the following convergence result.

Theorem 4.2: Assume a GNEP has a bounded feasible set, satisfies (A1)–(A4),
and the set limt→1 SOL(t) =: {x(1)} is single-valued. Suppose (11) holds, and the
sequence of multipliers {λk:S } is bounded. If there exists a c > 0 such that M j ≤ c
for all j ∈ N, we have
lim xS:S = x(1).
S→∞

Proof: By our assumptions we can apply Lemma 4.1 to obtain that

lim xS:S − x(S−1):S = 0.
S→∞
Then, we get from Theorem 3.1
0 = lim dist(xS:S , SOL(tS )) = lim dist(xS:S , x(1)),
S→∞ S→∞
which proves the theorem. 
16 A. DREVES

4.1. LGNEPs
Let us consider LGNEPs, i.e. GNEPs with linear constraint and cost functions,
where the best-response is always unique for both players. This implies that it is
always a vertex of the polyhedral feasible sets, which is assumed to be nonempty.
Thus, we have n1 and n2 linear independent active constraints, respectively. Fur-
ther, we assume that the sets of active constraints stays the same for all t ∈ [t̄, 1[
for some t̄ ∈ [0, 1[. We denote the corresponding index sets by J1 and J2 , respec-
tively. Then, in the continuous approach from [15], we obtain one solution path
by solving a linear equation system of the following form for all t ≥ t̄:
 J    1    
A111 tAJ121 x1 bJ1 0 AJ121 z1
2 = − (1 − t) . (12)
tAJ212 AJ222 x b2J2 AJ212 0 z2

Here, the matrices AJ111 and AJ222 contain only the active inequalities and are non-
singular, due to the assumed uniqueness of the best-response for both players.
Defining
 J   J   1  1
A111 AJ121 A111 0 z bJ
A := J2 J2
, D := J2
, z := 2 , and b := 21 ,
A A 0 A z bJ
21 22 22 2

we can rewrite (12) as

Dx = b − t(A − D)x − (1 − t)(A − D)z = t(D − A)(x − z) + b + (D − A)z.

By the unique best-response assumption, D is nonsingular, which leads to the

fixed-point equation

x = t(I − D−1 A)(x − z) + D−1 (b + (D − A)z) = tM(x − z) + w,

with
M := I − D−1 A and w := D−1 (b + (D − A)z).
By construction it is clear, that we have

w − tMz = (I − tM)x = D−1 [(1 − t)D + tA] x.

If the matrix (I − tM), or equivalently the matrix [(1 − t)D + tA], is nonsingular
for all t ∈ [t̄, 1[, we obtain unique solutions for each t ∈ [t̄, 1[, and we can define
the continuous function x(·) : [t̄, 1[→ Rn by

x(t) = (I − tM)−1 (w − tMz) = (I − tM)−1 (w − z + z − tMz)

= (I − tM)−1 (w − z) + z.

Nonsingularity of the matrix (I − tM) is shown in the following lemma.

 OPTIMIZATION 17

Lemma 4.3: There exists a t̄ ∈ [0, 1[ such that the matrix (I − tM) is nonsingular
for all t ∈ [t̄, 1[.

Proof: If (I − tM) is singular, we have a vector v = 0 such that 0 = (I − tM)v.

For t = 0 this is not possible, for t > 0 this implies Mv = (1/t)v and hence 1/t is
an eigenvalue of the matrix M. If there is no eigenvalue of M larger than 1, we are
done with t̄ = 0. Else, if σ is the smallest eigenvalue of M that is larger than 1, we
get nonsingularity of (I − tM) for any
 
1
t∈ ,1 ,
σ
and hence we can set for example t̄ = (σ + 1)/2σ . 

If the feasible set of the GNEP is bounded, the function x(t) stays bounded
and is continuous on [t̄, 1]. Then limt→1 SOL(t) contains at least the limit
x(1) := lim x(t) = lim (I − tM)−1 (w − z) + z,
t→1 t→1

As in the continuous case, we can also obtain the fixed-point equation for our Dis-
crete Best-Response Approach. Again, assuming that the set of active constraints
does not change and is given by J1 and J2 , respectively, we obtain
x(k+1):S = tk+1 M(xk:S − z) + w fork = K, . . . , S − 1. (13)
with
 
0 −(AJ111 )−1 AJ121
M = I − D−1 A = J2 −1 J2
−(A22 ) A21 0
and
 
(AJ111 )−1 b1J1 − (AJ111 )−1 AJ121 z2
w = D−1 (b + (D − A)z) = .
(AJ222 )−1 b2J2 − (AJ222 )−1 AJ212 z1
Now, we are in the position to apply Theorem 4.2 to the LGNEP setting.

Corollary 4.4: Assume an LGNEP has bounded feasible set, (13) holds, and
limt→1 SOL(t) is single-valued. If there exists a c > 0 such that M j ≤ c for all
j ∈ N, we have
lim xS:S = x(1).
S→∞

Proof: (A1), (A2) and (A3) hold for LGNEPs. Lemma 4.3 guarantees nonsin-
gularity of (I − tM) for all t ∈ [t̂, 1[ for some t̂ ∈ [t̄, 1[. This in turn yields that
SOL(t) contains the solution
x(t) = (I − tM)−1 (w − z) + z
for all t ∈ [t̂, 1[. By boundedness and continuity of x(·) the limit
limt→1 x(t) = x(1) exists, is unique, and is contained in SOL(1). Hence we have
18 A. DREVES

(A4). By the linearity of the constraints in LGNEPs, the sequence of multipliers

can be chosen constant, if the set of active constraints does not change. Hence
it is bounded. Since by assumption limt→1 SOL(t) = {x(1)} is single-valued, this
implies
lim xS:S = x(1)
S→∞
by Theorem 4.2. 

As an application of the uniform boundedness condition on M j we consider

jointly convex LGNEPs. Then, both players have the same constraints mean-
ing A11 = A21 and A12 = A22 . We further assume, that both players have the
same number of variables. If there is some t̄ ∈ [0, 1[, such that the same shared
constraints stay active for both players, we get the special case of (13) with
J1 = J2 =: J. Then, with our nonsingularity assumptions on AJ11 and AJ22 we get
 
−1 0 (AJ11 )−1 AJ22
M =I−D A=− .
(AJ22 )−1 AJ11 0

This yields M 2 = I, and with c = max{1, M }, the condition in Corollary 4.4 is

satisfied.

4.2. LQGNEPs
Here, we consider jointly convex LQGNEP of the form
1 1
min (x ) Q1 x1 + (c1 ) x1 s.t. A1 x1 + A2 x2 ≤ b,
x12
1
min (x2 ) Q2 x2 + (c2 ) x2 s.t. A1 x1 + A2 x2 ≤ b.
x2 2

Note, that this is not the most general setting of an LQGNEP, since the cost
functions do not depend on the other players variables and we have only joint
constraints.
In the continuous approach from [15] we have LQGNEP(t)
1 1
min (x ) Q1 x1 + (c1 ) x1 s.t. A1 x1 + tA2 x2 ≤ b − (1 − t)A2 z2 ,
x1 2
1
min (x2 ) Q2 x2 + (c2 ) x2 s.t. tA1 x1 + A2 x2 ≤ b − (1 − t)A1 z1 .
x 2 2

We assume that the matrices Q1 ∈ Rn1 ×n1 and Q2 ∈ Rn2 ×n2 are positive definite.
Hence, the cost functions are strongly convex, which together with the nonemp-
tyness of the convex feasible sets from Lemma 2.2, implies that the best-response
is always unique for both players. Further the favourite strategies z1 and z2 are
 OPTIMIZATION 19

also unique, and (GNEP(0)) has a unique generalized Nash equilibrium. With
the help of the Fischer–Burmeister function

ϕ(a, b) := a2 + b2 − a − b

the KKT conditions for LQGNEP(t) are equivalent to the equation system
⎛ ⎞
Q 1 x 1 + c 1 + A 1 λ1
⎜ Q2 x 2 + c 2 + A 2 λ2 ⎟
(t, x, λ) := ⎜ 1 2 2 1
⎟
⎝ϕ(λ , b − (1 − t)A2 z − tA2 x − A1 x )⎠ = 0.
ϕ(λ2 , b − (1 − t)A1 z1 − tA1 x1 − A2 x2 )
As one can see in [15], the strongest assumption to guarantee uniqueness of
a continuous solution path is the nonsingularity of the generalized Jacobian
∂(x,λ) (t, x, λ) of the function (t, x, λ). Assume that J1 is the set of active con-
straints for player 1, and J2 is the set of active constraints for player 2. Using [15,
Theorem 6.1 and Remark 6.1] the nonsingularity of ∂(x,λ) (t, x, λ) follows, if
( Q01 Q02 ) is nonsingular and the matrix
 J   −1  J 
A11 tAJ21 Q1 0 (A11 ) 0
R :=
tAJ12 AJ22 0 Q−1
2 0 (AJ22 )
 J −1 J 
A11 Q1 (A11 ) tAJ21 Q−1
2 (A J2
2 )
= J2 −1 J1 J2 −1 J2
tA1 Q1 (A1 ) A2 Q2 (A2 )
is a P-matrix, meaning that all its principal minors are positive.
With the results from [15], we can prove existence and uniqueness of a
continuous solution path.

Lemma 4.5: Let a jointly convex LQGNEP be given, where player LICQ is satisfied
at all KKT-points of LQGNEP(t) for t ∈ [0, 1[. Further assume that the feasible sets
of LQGNEP(t) are all contained in a bounded set. If R is a P-matrix, there exists a
unique solution path x(t), t ∈ [0, 1].

Proof: Since Q1 and Q2 are positive definite, Q01 Q02 is nonsingular. Since R
is a P-matrix, [15, Theorem 6.1 and Remark 6.1] guarantee nonsingularity of
∂(x,λ) (t, x, λ) for all t ∈ [0, 1]. From Lemma 2.2 the feasible sets of LQGNEP(t)
are nonempty for all t ∈ [0, 1]. Since Q1 and Q2 are positive definite, the cost
functions are strongly convex. Hence (GNEP(0)) has a unique solution. Since we
explicitly assumed player LICQ and the uniform boundedness of the feasible sets,
we can apply [15, Theorem 5.1 and Theorem 5.2] to get existence and uniqueness
of a continuous solution path x(t), t ∈ [0, 1]. 

Note, that this lemma gives sufficient conditions for limt→1 SOL(t) to be
single-valued. Now, we consider our Discrete Best-Response Approach, and we
20 A. DREVES

will use the assumptions made in Lemma 4.5. Additionally, we assume that for
k < S large enough the set J of active constraints is equal for both players and stays
constant, i.e. we have

AJ1 x(k+1):S
1
+ tk+1 AJ2 xk:S
2
= bJ − (1 − tk+1 )AJ2 z2 ,
c c c
AJ1 x(k+1):S
1
+ tk+1 AJ2 xk:S
2
< bJ c − (1 − tk+1 )AJ2 z2 ,
AJ2 x(k+1):S
2
+ tk+1 AJ1 xk:S
1
= bJ − (1 − tk+1 )AJ1 z1 ,
c c c
AJ2 x(k+1):S
2
+ tk+1 AJ1 xk:S
1
< bJ c − (1 − tk+1 )AJ1 z1 ,

for all k < S large enough, where J c is the complement of the set J. Thus,
c 2,J c
λ1,J
(k+1):S = 0 and λ(k+1):S = 0. The remaining KKT conditions result in linear
equation systems

  1
  
Q1 (AJ1 ) x(k+1):S −c1
= 2 ) ,
AJ1 0 λ1,J bJ − AJ2 z2 + tk+1 AJ2 (z2 − xk:S
(k+1):S
  2
  
Q2 (AJ2 ) x(k+1):S −c2
= 1 ) .
AJ2 0 λ2,J bJ − AJ1 z1 + tk+1 AJ1 (z1 − xk:S
(k+1):S

Solving the first blocks of the systems by exploiting nonsingularity of Q1 and Q2 ,

we obtain

1
x(k+1):S = −Q−1 J 1,J −1 1
1 (A1 ) λ(k+1):S − Q1 c ,
2
x(k+1):S = −Q−1 J 2,J −1 2
2 (A2 ) λ(k+1):S − Q2 c .

Inserting this in the last two blocks yields

−AJ1 Q−1 J 1,J J −1 1 J 2 J 2 2

1 (A1 ) λ(k+1):S = A1 Q1 c + bJ − A2 z + tk+1 A2 (z − xk:S ),

−AJ2 Q−1 J 2,J J −1 2 J 1 J 1 1

2 (A2 ) λ(k+1):S = A2 Q2 c + bJ − A1 z + tk+1 A1 (z − xk:S ).

Player LICQ implies full row rank of AJ1 and AJ2 . Thus the matrices AJ1 Q−1 J
1 (A1 )
and AJ2 Q−1 J
2 (A2 ) are nonsingular. Therefore, we get

J −1 J −1
λ1,J
(k+1):S = A1 Q1 (A1 ) −AJ1 Q−1 1 J 2 J 2 2
1 c − bJ + A2 z − tk+1 A2 (z − xk:S ) ,

J −1 J −1
λ2,J
(k+1):S = A2 Q2 (A2 ) −AJ2 Q−1 2 J 1 J 1 1
2 c − bJ + A1 z − tk+1 A1 (z − xk:S ) ,
 OPTIMIZATION 21

and
−1
1
x(k+1):S = tk+1 Q−1 J
1 (A1 ) AJ1 Q−1 J
1 (A1 ) AJ2 (z2 − xk:S
2
)
−1
+ Q−1 J
1 (A1 ) AJ1 Q−1 J
1 (A1 ) AJ1 Q−1 1 J 2
1 c + bJ − A 2 z − Q−1 1
1 c ,
−1
2
x(k+1):S = tk+1 Q−1 J
2 (A2 ) AJ2 Q−1 J
2 (A2 ) AJ1 (z1 − xk:S
1
)
−1
+ Q−1 J
2 (A2 ) AJ2 Q−1 J
2 (A2 ) AJ2 Q−1 1 J 1
2 c + bJ − A 1 z − Q−1 2
2 c .

Defining the matrix

⎛ −1 ⎞
0 −Q−1 J
1 (A1 ) AJ1 Q−1 J
1 (A1 ) AJ2
M := ⎝ −1
⎠,
−Q−1 J
2 (A2 ) AJ2 Q−1 J
2 (A2 ) AJ1 0

and the vector

⎛ −1 ⎞
Q−1 J
1 (A1 ) AJ1 Q−1 J
1 (A1 ) AJ1 Q−1 J 2
1 c + bJ − A 2 z
1 − Q−1
1 c
1
w := ⎝ −1
⎠,
Q−1 J
2 (A2 ) AJ2 Q−1 J
2 (A2 ) AJ2 Q−1
2 c
2 + bJ − AJ1 z1 − Q−1
2 c
2

we finally obtain the recursive formula as in (11)

x(k+1):S = tk+1 M(xk:S − z) + w. (14)

Corollary 4.6: Let a jointly convex LQGNEP be given that satisfies the assump-
tions of Lemma 4.5. Further, assume that for k < S large enough the set J of active
constraints is equal and constant for both players, implying that {xk:S } is defined
by (14). Then we have
lim xS:S = x(1).
S→∞

Proof: (A1) and (A2) always hold for LQGNEPs. Since we have player LICQ as
an assumption in Lemma 4.5, we have (A3), and from the assertion of this lemma,
we have a unique solution path, implying (A4) and limt→1 SOL(t) = {x(1)} to
be single-valued. Boundedness of {xk:S } follows from the uniform boundedness
assumption in Lemma 4.5, and this, together with the player LICQ, implies that
{λk:S } stays bounded. Now, in order to apply Theorem 4.2, it remains to show
uniform boundedness of M j . We obtain by definition
⎛ −1 J ⎞
−1 J J −1 J
Q (A ) A Q (A ) A 0
M2 = ⎝ ⎠
1 1 1 1 1 1
−1 J ,
0 Q−1
2 (A J
2 ) A J −1 J
Q
2 2 (A 2 ) A 2
22 A. DREVES

and further
⎛ −1 ⎞
0 −Q−1 J
1 (A1 ) AJ1 Q−1 J
1 (A1 ) AJ2
M3 = ⎝ −1
⎠ = M.
−Q−1 J
2 (A2 ) AJ2 Q−1 J
2 (A2 ) AJ1 0

Hence, we have M j ≤ max{ M , M 2 } for all j ∈ N. Thus, we can apply

Theorem 4.2 and obtain

lim xS:S = x(1). 

S→∞

5. Examples
Example 5.1: Let us first consider a simple jointly convex LGNEP, where each
player has one variable to be maximized, and we have only one linear shared
constraint. For the two parameters z1 , z2 > 0 we consider

max x1 s.t. x ≥ 0, z2 x1 + z1 x2 ≤ z1 z2 ,
x1

max x2 s.t. x ≥ 0, z2 x1 + z1 x2 ≤ z1 z2 .
x2

This LGNEP has infinitely many solutions, namely all feasible points, where the
shared constraint is active. Using our solution concept, we get for this problem
the favourite strategies z = (z1 , z2 ), and we obtain LGNEP(t)

max x1 s.t. x ≥ 0, z2 x1 + tz1 x2 + (1 − t)z1 z2 ≤ z1 z2 ,

x1

max x2 s.t. x ≥ 0, tz2 x1 + z1 x2 + (1 − t)z1 z2 ≤ z1 z2 .

x2

For all t ∈ [0, 1[, its unique solution is given by the solution of the linear equation
system
   
z2 tz1 z1 z2
x(t) = t ,
tz2 z1 z1 z2
which is
t
x(t) = z.
1+t
Thus,
t 1
lim SOL(t) = lim z = z.
t→1 t→1 1 + t 2
For this problem, we can apply the theory of Section 4.1, since the only
shared constraint is always active. The Discrete Best-Response Approach yields
 OPTIMIZATION 23

x0:S = (0, 0) and

⎛ z2 ⎞
0 −
⎜ z1 ⎟
x(k+1):S = tk+1 M(xk:S − z) + w = tk+1 ⎝ z1 ⎠ (xk:S − z)
− 0
z2
for all K = 0, . . . , S − 1. By Corollary 4.4, we obtain
1
lim xS:S = x(1) = z.
S→∞ 2
Note, that for these simple problems, it would be enough to perform just one step
with t1 = 12 to obtain the solution x1:1 = 12 z. This, however, is only true for this
simple example class. Let us mention, that the given problem can also be seen
as a Nash Bargaining Problem, since both players have one variable to be maxi-
mized, and hence the strategy and the pay-off are equal. In the Nash Bargaining
Problem, the players have (in the pay-off) a disagreement point, which is (0, 0)
and hence equal to x(0) here, and negotiate an agreement point in the common
convex feasible pay-off set. This set is equal to the strategy set in our consid-
ered problem. Following [21], and using axiomatic definitions of the solution,
one finds the same solution 12 z, that we obtained. Similarly, the solution concept
of [22] is also an axiomatic one, and yields the same solution here. But we want
to stress, that this is only true, if we have a single linear shared constraint.

Example 5.2: For a further example, let us consider the following LGNEPs with
a parameter a > 1, which all have infinitely many generalized Nash equilibria (all
the feasible points, where at least one of the shared constraints is active).

max x1 s.t. x ≥ 0, x1 + 3x2 ≤ 3, ax1 + 2x2 ≤ 2a,

x1

max x2 s.t. x ≥ 0, x1 + 3x2 ≤ 3, ax1 + 2x2 ≤ 2a.

x2

In this example class, one can show that the three solution concepts from
[15,21,22] yield the same solution only for the parameter a = 32 . For a = 32 they
all select a different equilibrium.
Let us consider three different parameters yielding to different phenomena in
the continuous setting of [15]: For a = 43 we have a unique solution of (GNEP(t))
for all t ∈ [0, 1] and limt→1 SOL(t) is single-valued. For a = 32 we have a unique
path for t ∈ [0, 23 [, infinitely many solutions for t = 23 , and for t > 23 we have
three different solution paths. For a = 95 there is a continuous solution path in
[0, 1], but at some t there develop two more solution paths independently of the
existing one. In the latter two cases limt→1 SOL(t) consists of three points.
In all three cases, one can see in Figure 2 that the Discrete Best-Response
Approach with S = 10 follows a solution path properly, and it favours the con-
tinuous path instead of jumping to another one. As solution of the equilibrium
24 A. DREVES

Figure 2. Continuous and discrete solutions (left column for S = 10 rounds, right column for
S = 50) for LGNEP of Example 5.2 with parameter a = 43 , a = 32 , a = 95 (top to bottom).

Table 1. Solutions for equilibrium selection for Example 5.2 for different parameter a.
a Equilibrium x10:10 Active (S = 10) x50:50 Active (S = 50)
 
4 5 1
, (1.2529, 0.5220) 2;2 if k ≥ 6 (1.2538, 0.5025) 2;2 if k ≥ 26
3 4 2
 
3 6 3
, (1.2129, 0.6065) 1;2 if k ≥ 0 (1.2026, 0.6013) 1;2 if k ≥ 0
2 5 5
 
9 2
1, (1.0420, 0.6693) 1;1 if k ≥ 5 (1.0050, 0.6683) 1;1 if k ≥ 22
5 3

selection problem we propose the equilibrium stated in Table 1. Further, we

report in the table that the active constraints stay the same for k large enough,
for example for the parameter a = 43 the second constraint is active for both
players for 6 ≤ k ≤ S = 10. This indicates that we are in the setting of the pre-
vious section, and we can expect that the sequence {xk:S } is eventually defined
by (11). For the parameter a = 43 and a = 95 we have the situation mentioned at
the end of Section 4.1, where M 2 = I, and hence we expect convergence due to
0 3
Corollary 4.4. However, for a = 32 we have M = − 3 0 and hence M 2 = 94 I.
4
Thus the uniform boundedness condition on M j is violated. Nevertheless, we
 OPTIMIZATION 25

observe convergence. But this convergence is destroyed by small perturbations

of xk:S for k large enough.
Let us mention that the presented Discrete Best-Response Approach is a justifi-
cation, why one should prefer the endpoint of the middle path in the example with
parameter a = 32 as solution for the equilibrium selection problem, see Figure 2.
Note that in [15], the entire set SOL(1), and hence all three limiting points were
accepted as reasonable solutions of the GNEP.

Example 5.3: We consider a jointly convex LQGNEP given by

 
1 1 3 1 1
max (x ) x − (5, 3)x1 s.t. x11 + x21 + x12 + x22 ≤ 1, −x11 − x22 ≤ 0,
x1 2 1 1
 
1 1 1 2
max (x2 ) x − (5, 3)x2 s.t. x11 + x21 + x12 + x22 ≤ 1, −x11 − x22 ≤ 0.
x 2 2 1 2

For this example, only the players own components of the favourite solu-
tion are unique, which, however, is enough for our theory. We can compute
z = (−1, −2, −7, −2), and we can show, that the unique solution path for
LQGNEP(t) is given by

1
x(t) = (−2 − t, 8 − 2t, 3 − 7t, 1 + 2t) , t ∈ [0, 1].
1+t
This results in the single-valued set
 
1 3 3
lim SOL(t) = lim (−2 − t, 8 − 2t, 3 − 7t, 1 + 2t) = − , −2, 3, .
t→1 t→1 1 + t 2 2

There exists a sufficiently large neighbourhood of the unconstrained minima

of the strongly convex cost functions, such that this neighbourhood contains a
feasible point for all t ∈ [0, 1]. Therefore, introducing sufficiently large box con-
straints, we do not change the problem, since the box constraints will not become
active. Hence we obtain for the Discrete Best-Response Approach a bounded
sequence, defined by

x(k+1):S = tk+1 M(xk:S − z) + w

⎛ ⎞ ⎛ ⎞
0 0 0 −1 2
⎜0 0 −1 0 ⎟ ⎟ ⎜ ⎟
= tk+1 ⎜ (x − z) + ⎜−6⎟ .
⎝ 0 −1 0 0⎠ k:S ⎝−1⎠
−1 0 0 0 −1

Player LICQ is everywhere satisfied in this example, and since M 2 = I, we get

uniform boundedness by M j ≤ max{1, M }. Thus Corollary 4.6 guarantees
26 A. DREVES

Figure 3. Continuous and discrete solutions for S = 10 rounds (left) and S = 50 rounds (right) for
the LQGNEP of Example 5.3.

convergence
 
3 3
lim xS:S = − , −2, 3, .
S→∞ 2 2

For a numerical illustration we set S = 10 and S = 50, and we can observe a quite
accurate following of the unique solution path in each component, see Figure 3.

6. Conclusions
In this paper, we have modelled the equilibrium selection process for two-
player generalized Nash equilibrium problems through a Discrete Best-Response
Approach. By letting the number of negotiation rounds going to infinity, we select
the equilibrium suggested by the continuous approach in [15], whenever we
obtain convergence. Thus, we presented a different motivation for the cited equi-
librium selection theory. Our approach results in a Jacobi-type algorithm, which
is easy to implement, and can be shown to converge at least for some LGNEPs
and LQGNEPs. We also gave an example that it may fail, even for a standard
Nash game. It is part of future research, if it is also possible to characterize the
selected equilibrium through its properties, including scaling invariance, and not
only through a continuous or discrete solution process.

Acknowledgments
I thank an anonymous referee for his remarks, helping to improve the quality of the paper.

Disclosure statement
No potential conflict of interest was reported by the author.

ORCID
Axel Dreves http://orcid.org/0000-0001-9798-0719
 OPTIMIZATION 27

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