Quadratic regularization of bilevel pricing problems and application to electricity retail markets

Quentin Jacquet, Wim van Ackooij, Clémence Alasseur, Stéphane Gaubert

Abstract: Highlights•The design of a menu of contracts must consider uncertainty in the customers decision.•The formulation with a quadratically regularized lower-level leads to robust prices.•The pivoting heuristic, based on geometrical properties, solves realistic instances.•Study on French Electricity Retail market shows effectiveness of the quadratic model.