Anna Nagurney, Ding Zhang (Auth.) Projected Dynamical Systems and Variational Inequalities With Applications 1996

Projected Dynamical Systems and
Variational Inequalities with Applications

INTERNATIONAL SERIES IN
OPERATIONS RESEARCH & MANAGEMENT SCIENCE
Frederick S. Hillier, Series Editor

Department of Operations Research
Stanford University
Stanford, California
Saigal, Romesh.
The University of Michigan
LINEAR PROGRAMMING: A Modem Integrated Analysis
Projected Dynamical Systems and
Variational Inequalities with Applications
Anna Nagumey
and
Ding Zhang
School of Management
University of Massachusetts
Amherst, Massachusetts
~.
"
Springer Science+Business Media, LLC
ISBN 978-1-4613-5972-2 ISBN 978-1-4615-2301-7 (eBook)
DOI 10.1007/978-1-4615-2301-7
Library of Congress Cataloging-in-Publication Data
A C.I.P. Catalogue record for this book is available from the Library of
Congress.
Copyright c 1996 by Springer Science+Business Media New York

Origina11y published by Kluwer Academic Publishers in 1996
Softcover reprint of the hardcover 1st edition 1996
Ali rights reserved. No part of this publication may be reproduced, stored in
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the publisher, Springer Science+Business Media, LLC.
Printed on acid-free paper.

To Lad and Alexandra
and
June
Contents
Preface xv
Acknowledgments xx
Glossary of Notation XXI
I Theory of Projected Dynamical Systems 1
1 Introduction and Overview 3

1.1 Sources and Notes . . . . 6
2 Projected Dynamical Systems 9

2.1 The Variational Inequality Problem. 12
2.2 The Projected Dynamical System. 17
2.3 The Skorokhod Problem . . . . . 27
2.3.1 A Discrete Time Example . 28
2.3.2 The Skorokhod Problem . . 29
2.3.3 An Equivalent Problem and Uniqueness of Solu-
tions to the ODE(F, K) . . . . . . . . . . . . . .. 31
2.3.4 Existence of Solutions to the ODE(F, K) and Con-
vergence of Discrete Approximations 34
2.4 Sources and Notes .. . . . . . . . . . . . . 39
3 Stability Analysis 45
3.1 Basic Concepts of Stability 47
3.1.1 Examples . . . . . . 50
3.2 Local Properties Under Regularity 52
3.3 Properties Under Monotonicity 67
Vll
viii CONTENTS
3.4 Sources and Notes . . . . . . . . . . . . . . . . . . . . . . 72
4 Discrete Time Algorithms 75

4.1 The General Iterative Scheme . . . . . . 76
4.1.1 Examples of Induced Algorithms 79
4.2 Convergence.... 82
4.3 Source and Notes . . . . . . . . . . . . . 86
II Applications 91
5 Oligopolistic Market Equilibrium 93

5.1 Oligopoly Models. . . . . . . . . . . . . . . . . . 94
5.1.1 The Variational Inequality Formulations . 94
5.1.2 The Projected Dynamical System Model. 101
5.2 Stability Analysis . . . . . . . . . . . 102
5.2.1 Stability Under Monotonicity 103
5.2.1.1 An Example . . . 111
5.2.2 Stability Under Regularity. 112
5.2.2.1 An Example 116
5.3 A Discrete Time Algorithm 118
5.3.1 Numerical Examples 122
5.4 Sources and Notes .. . 129
6 Spatial Price Equilibrium 133

6.1 The Quantity Model . . . . . . . . . . . . . . . . 135
6.1.1 A Variational Inequality Formulation. . . 135
6.1.2 The Projected Dynamical S~stems Model ~
138
6.2 Stability................ 139
6.2.1 Stability Under Monotonicity 140
6.2.1.1 An Example . . . 143
6.2.2 Stability Under Regularity. 144
6.2.2.1 An Example 147
6.3 A Discrete Time Algorithm . . . . 148
6.4 Numerical Results . . . . . . . . . 153
6.4.1 Computation of Classical Problems. 153
6.4.1.1 A Small-Scale Example . . 154
6.4.1.2 Massively Parallel Computation of Clas-
sical Problems . . . . . . . . . . . . . . . 156
CONTENTS ix
6.4.2 Computation of Asymmetric and Nonlinear Prob-

lems . . . . . . . . . . . . . . . . . . . . . . . . . . 159
6.4.2.1 A Small-Scale Example . . . . . . . . . . 160
6.4.2.2 Massively Parallel Computation of Large-
Scale Asymmetric Examples . . . . . . . . 160
6.4.3 Discussion................. 164
6.5 The Price and Quantity Model . . . . . . . . . . 164
6.5.1 The Variational Inequality Formulation . 165
6.5.2 The Projected Dynamical Systems Model 167
6.6 A Discrete Time Algorithm . . . . . . . . . 169
6.7 Numerical Results . . . . . . . . . . . . . . 178
6.7.1 Computation of Classical Problems. 178
6.7.1.1 A Small-Scale Example . . 179
Scale Classical Spatial Price Examples . . 182
6.7.2 Computation of Nonlinear and Asymmetric Prob-
lems . . . . . . . . . . . . . . . . . . . . . . . . . . 187
6.7.2.1 A Small-Scale Example . . . . . . . . . . 187
Scale Spatial Price Asymmetric Examples 188
6.7.3 Discussion. 192
6.8 Sources and Notes . . . . . . . . . . . . . . . . . . . . . . 193
7 Elastic Demand Traffic Equilibrium 197

7.1 The Traffic Model with Disutility Functions 199
7.1.1 Variational Inequality Formulations 199
7.2 Stability Analysis . . . . . . . . . . . . . . . . . . 203
7.2.1 Global Stability Analysis Using the Monotonicity
Approach ....................... 205
7.2.2 Local Stability Analysis Using the Regularity Ap-
proach . . . . . . . 213
7.2.3 An Example ... 216
7.3 Discrete Time Algorithms 221
7.4 Numerical Results .... 227
7.4.1 Small-Scale Examples 227
7.4.1.1 An Example with Linear Functions 228
7.4.1.2 A Nonlinear and Asymmetric Example 230
7.4.2 Larger-Scale Examples . . . . . . . . . . . . . . . 232
x CONTENTS
7.5 The Traffic Model with Demand Functions ... 236

7.5.1 The Variational Inequality Formulation 237
7.6 Stability Analysis . . . . . 239
7.7 Discrete Time Algorithms .. 248
7.8 Numerical Results · ..... 256
7.8.2 Larger-Scale Examples . 259
7.9 Sources and Notes · ........ . . . . . . . . . . . . 261
8 Fixed Demand Traffic Equilibrium 267

8.1 The Fixed Demand Traffic Model . ........ 268
8.1.1 Variational Inequality Formulations ... 268
8.2 Stability Analysis . . . . . . 272
8.3 A Discrete Time Algorithm 278
8.4 Numerical Results · ..... 281
8.4.2 Larger-Scale Examples. 287
8.5 Sources and Notes · .................... 290
Index 293
List of Figures
2.1 Geometric interpretation ofthe variational inequality prob-

lem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.2 Portrait of a classical dynamical system and a particular
trajectory . . . . . . . . . . . . . . . . . . . . . . . . . .. 21
2.3 Portrait of a projected dynamical system and a particular
trajectory . . . . . . . . . . . . . . . . . . . . . . . . . .. 21
2.4 Relationships between nonlinear equations and variational
inequality problems and classical and projected dynamical
systems . . . . . . . . . . . . . . . . . . . . . . . . . . .. 23
2.5 A trajectory of a projected dynamical system that evolves
both in the interior and on the boundary of the feasible
set K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.1 A stable equilibrium point. . . . . . . . . . 48

3.2 An unstable equilibrium point . . . . . . . . 48
3.3 An asymptotically stable equilibrium point 49
3.4 A finite-time attractor . . . . . . . . . . . . 50
3.5 An example where the equilibrium point of a PDS is asymp-
totically stable, but not even stable for the DS . . . . .. 51
3.6 An example where the equilibrium point of the DS is
asymptotically stable, but not even stable for the PDS .. 52
4.1 An illustration of a discrete time algorithm in the back-

ground of its associated projected dynamical system 77
5.1 Graphical depiction of the spatial oligopoly problem 96

5.2 Graphical depiction of the classical oligopoly problem .. 98
5.3 Graphical display of iterates of the Euler method for a
5-firm oligopoly. . . . . . . . . . . . . . . . . . . . . 124
xi
xii LIST OF FIGURES

2-firm spatial oligopoly . . . . . . . . . . . . . . . . . . . 126
3-firm spatial oligopoly . . . . . . . . . . . . . . . . . . . 128
6.1 Graphical depiction of the spatial price equilibrium problem137

classical spatial price example in quantity variables . . . . 155
6.3 Graphical display of iterates of the Euler method for an
asymmetric spatial price example in quantity variables . . 162
classical spatial price example in price and quantity variables 183
6.5 Graphical display of iterates of the Euler method for an
asymmetric spatial price example in price and quantity
variables . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190
7.1 A transportation network example . . . . . . . . . .. 217

7.2 The Braess network topology . . . . . . . . . . . . " 228
7.3 A transportation network with 20 nodes and 28 links. 232
7.4 A transportation network with 25 nodes and 37 links. 235
8.1 Graphical display of iterates of the Euler method for the

Braess network . . . . . . . . . . . . . . . . . . . . . . . . 284
8.2 Graphical display of iterates generated by the Euler method
for a nonlinear, asymmetric network . . . . . . . . . . . . 287
List of Tables
5.1 Parameters for a 5-firm oligopoly . . . . . . . . . . 122

5.2 Euler method iterates for a 5-firm oligopoly . . . . 123
5.3 Euler method iterates for a 2-firm spatial oligopoly 125
6.1 Iterates generated by the Euler method for a classical spa-

tial price example in quantity variables . . . . . . . . . . 156
6.2 CM-2 times and CM-5 times for classical spatial price
problems - Quantity formulation . . . . . . . . . . . . . . 158
6.3 Iterates generated by the Euler method for an asymmetric
spatial price example in quantity variables . . . . . . . . . 161
6.4 CM-2 times and CM-5 times for asymmetric spatial price
problems - Quantity formulation . . . . . . . . . . . . . . 163
6.5 Iterates generated by the Euler method for a classical spa-
tial price example in price and quantity variables . . . . . 181
6.6 Continuation of iterates for a classical spatial price example 182
6.7 CM-2 times and CM-5 times for classical spatial price ex-
amples - Price formulation. . . . . . . . . . . . . . . . . . 185
6.8 Iterates generated by the Euler method for a small asym-
metric spatial price example in price and quantity variables 189
6.9 CM-5 times for asymmetric spatial price problems - Price
formulation . . . . . . . . . . . . . . . . . . . . . . . . . . 192
8.1 Iterates generated by the Euler method for the Braess

network . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284
8.2 Iterates generated by the Euler method for a nonlinear,
asymmetric cost network . . . . . . . . . . . . . . . . . . 286
Xlll
Preface
The concept of equilibrium is central to the understanding of competitive

systems arising in different disciplines. Examples of equilibrium prob-
lems include: markets in which firms compete to determine their profit-
maximizing production outputs, spatial economic systems in which the
optimal commodity production, consumption, and interregional trade
patterns are to be computed, congested urban transportation systems in
which users seek to determine their cost-minimizing routes of travel, gen-
eral economic equilibrium problems in which all the commodity prices are
to be determined, and general financial equilibrium problems in which
the optimal composition of instruments in each sector's portfolio and
the instrument prices are sought. The complexity and often large-scale
nature of such systems have stimulated the development of a variety of
mathematical methodologies for their analysis and computation.
Foremost of the methodologies has been the theory of finite-dimen-
sional variational inequalities, which has yielded a powerful tool for both
the qualitative analysis of equilibria governed by entirely distinct equi-
librium concepts, as well as, theoretically rigorous computational pro-
cedures. Moreover, since the variational inequality problem contains as
special cases such well-known problems in mathematical programming as
complementarity problems, optimization problems, and nonlinear equa-
tions, it also has provided us with a unifying methodology.
The focus of finite-dimensional variational inequality theory, how-
ever, has been on the study of the equilibrium state and, hence, it may
be viewed as being static in scope. At the same time, algorithms for
the computation of variational inequality problems have performed well
in practice and have been found suitable for many large-scale applica-
tions. Dynamical systems theory, on the other hand, in its well-known
classical setting, which assumes that the right-hand side of the ordi-
nary differential equation is continuous, although capable of providing
xv
xvi
the behavior of many systems over time, cannot in its present state
handle many real-life situations since the existing theory cannot handle
problems with constraints underlying the system in question. Hence, it
cannot adequately model situations where resources, be they financial,
natural, or human, are limited. Nor can classical dynamical systems
theory ensure that prices, production outputs, or commodity shipments
will be nonnegative over time.
This book presents and develops a new type of dynamical system,
which we call a projected dynamical system, which not only allows the
modeler to incorporate constraints but also is intimately related to the
variational inequality problem. Ir. fact, the ordinary differential equa-
tion studied here has stationary points that coincide with solutions to the
associated variational inequality problem. As a consequence, any equilib-
rium problem that can be formulated as a finite-dimensional variational
inequality problem can now also be studied as a projected dynamical
system. Moreover, the associated dynamical system is the natural one.
This book attempts to bring this new class of nonclassical dynamical sys-
tem to the same level of theoretical development as existing for classical
dynamical systems.
The challenges encountered from the study of projected dynamical
systems arise from the fact that the right-hand side of the ordinary
differential equation, which is now a projection operator, is no longer
continuous. The discontinuities arise from the constraints in the varia-
tional inequality problem for the application in question. Hence, existing
methodologies are no longer applicable.
The book is divided into two major parts: Part I lays the theoretical
foundations of projected dynamical systems and variational inequalities
and Part II then utilizes, expands, and applies the theory to a variety
of competitive equilibrium problems that have, heretofore, been studied
primarily in a static setting at an equilibrium state. The applications
studied are drawn from operations research, management science, and
economics, with the intention of selecting problems of sufficiently general
interest which, at the same time, illustrate distinct equilibrium concepts
and possess features that highlight the theory presented here.
Part I consists of four chapters, beginning with Chapter 1 as an in-
troduction and overview of the material covered in the book. Chapter 2
reviews the variational inequality problem and introduces the projected
dynamical system, whose right-hand side is a projection operator and
whose stationary points coincide with the set of solutions of the vari-
XVll
ational inequality problem. The expected behavior of the solutions is

discussed and the ordinary differential equation is given an interpreta-
tion. The ordinary differential equation is then studied via the Skorokhod
Problem. Crucial issues such as the maintenance of feasibility and the
discrete-time version of the differential equation are also addressed. Fur-
thermore, conditions for existence and uniqueness of the solution path
are given.
Chapter 3 then continues the theoretical developments by present-
ing the stability analysis. Here we present the mathematical machinery
to analyze the stability of the equilibrium in many economic and social
systems with their natural constraints. In particular, the dynamical sta-
bility analysis described here should facilitate a discrimination between
those variational inequality solutions having "good" stability as equilib-
ria that may, hence, be expected to occur realistically and those with
"bad" stability, to be eliminated for consideration in applications.
Two distinct approaches are set forth in Chapter 3. The first ap-
proach, termed the "regularity approach," uses minimal face flows and
the concept of a regular solution to a variational inequality problem to
show that the projected dynamical system inherits many stability prop-
erties from its induced minimal face flow. Since the latter is a standard
dynamical system of a lower dimension, the stability of the projected
dynamical system can thus be exploited through the stability theory of
classical dynamical systems. The second approach, termed the "mono-
tonicity approach," uses monotonicity conditions to obtain both local
and global stability results.
Chapter 4 is concerned with the computation of the stationary points
of projected dynamical systems. In particular, a general iterative scheme
is presented that contains, as special cases, many of the numerical meth-
ods that are currently in use in the field of dynamical systems. In addi-
tion, we provide a proof of convergence. The conditions for convergence
are then interpreted for particular schemes in the context of specific ap-
plications studied in later chapters.
Part II develops applications using the projected dynamical systems
theory set forth in Part I. Part II begins with Chapter 5, which focuses
on oligopolistic market equilibrium problems. In such problems several
firms are involved in the production of a homogeneous commodity in a
noncooperative manner. Oligopolistic market equilibrium problems are
examples of game theory problems. In particular, two models are con-
sidered here, the classical, Cournot-Nash equilibrium model, which is
xviii
aspatial, and the spatial or network oligopoly model in which firms and
demand markets may be spatially separated. These models are examples
of imperfectly competitive models, where the firms affect the prices of
the commodities in the markets, ra.ther than being price-takers. Starting
with the variational inequality formulations of the governing equilibrium
conditions, the projected dynamical systems are first presented and their
interpretations as adjustment processes given. In contrast to the some of
the previously proposed dynamical models of oligopolies, the projected
dynamical systems models guarantee that both the firms' production
outputs and commodity shipments are nonnegative. Stability analysis
is then conducted for these models, using the two distinct approaches
developed in Chapter 3. Finally, an algorithm is proposed for the com-
putation ofthe solutions, with convergence results, and numerical results
are also presented.
Chapter 6 considers the spatial price equilibrium problem that has
wide applications ranging from commodity and energy markets to in-
ternational trade. The spatial price equilibrium problem is an example
of perfect competition. Here we consider first the quantity model in
which all the variables are in quantity form. Beginning with the varia-
tional inequality formulation of the governing equilibrium conditions, we
obtain the projected dynamical systems model and interpret the dynam-
ical model as an adjustment or tatonnement process. Stability analysis
is conducted by adapting and extending the results of Chapter 3 to this
problem domain. An algorithm is proposed, with supporting conver-
gence results. Finally, numerical examples are presented for illustrative
purposes. In addition, we propose an alternative model in both price and
quantity variables, along with the theoretical analysis. In this chapter
we also implement the numerical schemes on (massively) parallel archi-
tectures, since spatial price equilibrium problems can be large-scale in
practice.
Chapter 7 and Chapter 8 consider the traffic network equilibrium
problem, which has been the focus of many modeling efforts and al-
gorithmic advances in recent years. Using as the basis the variational
inequality formulations of what are known as the Wardropian equilib-
rium conditions, we derive projected dynamical systems models in the
case of elastic demands in Chapter 7 and then fixed demands in Chap-
ter 8. We consider two situations of the elastic demand case, one in
which the travel disutility functions associated with traveling between
the origin/destination pairs are given, and the other, in which the de-
xix
mand functions are given, rather than their inverses. Dynamical models
are proposed for both formulations. Stability results are also developed
using as the basis the theoretical results of Chapter 3. Finally, we present
algorithms based on the general iterative scheme for the elastic demand
models in Chapter 7 and for the fixed demand model in Chapter 8. The
algorithms are with accompanied by convergence results and numerical
examples.
Throughout the book figures and examples are provided to illustrate
the main concepts. Each application chapter is self-contained after the
reader has familiarized him/herself with the basic theoretical chapters.
Chapter 7 and Chapter 8 are companion chapters that deal with dynamic
transportation models. Sources and notes follow each chapter. Refer-
ences are also given after each chapter for convenience of the reader.
The intended audience for this book includes students, researchers,
and practitioners in operations research, management science, and in
economics, who are interested in the formulation, analysis, and compu-
tation of equilibrium problems in a dynamical setting.
xx
Acknowledgments
The need for the inclusion of the understanding of dynamics in the for-
mulation and study of competitive systems, ranging from a variety of eco-
nomic systems to congested transportation systems, has been sounded
in scientific meetings and discussions over the past decade.
The research that formed the foundation for this book was initiated
in 1992, while the first author was on sabbatical leave from the Univer-
sity of Massachusetts at Amherst at the Lefschetz Center for Dynamical
Systems at Brown University in Providence, Rhode Island. While at
Brown, the collaboration with Paul Dupuis was initiated, following his
seminar presentation that highlighted a linkage between the set of solu-
tions of a variational inequality problem and a "new" type of dynamical
system.
In Australia, during a workshop in Mallacootta on the Network Econ-
omy in December, 1992, the first author had the opportunity to meet
Takashi Takayama, with whom began another collaboration to explore
the ideas of projected dynamical systems for the study of spatial eco-
nomic systems.
The research described herein was supported by a National Science
Foundation Faculty Award for Women, NSF Grant No. DMS-9024071.
The resources of the Illinois National Center for Supercomputer Ap-
plications at the University of lllinois at Urbana and at the Cornell
Theory Center at Cornell University in Ithaca, New York were utilized
for the computational work.
We are grateful to our families and collaborators, without whom this
book would not have been possible.
xxi
Glossary of Notation
This is a glossary of symbols used in this book. Other symbols are
defined in the book, as needed. A vector is assumed to be a column
vector, unless noted otherwise.
E an element of
c subset of
union, intersection, Cartesian product
for all
there exists
the real line
Euclidean n-dimensional space
the nonnegative orthant of R n
on the nonnegative orthant
such that j also I
assignment operator
is equivalent to
tends to
maps to
(',' ) inner product
o composition
IIxll = (Li=l x~)t length of x ERn with components (Xl, X2,"" x n )
xT transpose of a vector x
Iyl absolute value of y
[a,b] j(a,b) a closed intervalj an open interval in R
VI gradient of I: R n ~ R
VF the n X n Jacobian of a mapping F: Rn ~ Rn
!!.1 partial derivative of I with respect to Xj also I'
8x
argminxeK I( x ) the set of x E K attaining the minimum of I( x )
VuF the sub-Jacobian matrix of F
restricted to the variables in subset U
transpose of the matrix A
the inverse of the matrix A
the identity matrix
00 infinity
XXII
For a subset 8 in the Euclidean space, we define the following nota-

tion:
80 the interior of 8
ri8 the relative interior of 8
a8 the boundary of 8
cov8 the convex hull of 8
S the closure of 8
L(8) the linear subspace generated by 8
81- the orthogonal complement to 8
w(8) the w-limit set of 8
B(x,r) the open ball centered at x with radius r
ftg(t) the derivative of 9 with respect to time tj also g(t)
Xo· t the dynamic system at time t that passes through Xo
at time OJ also xo(t)
For a closed, convex set J(, we define the following notation:
PK the norm projection map: Rn f--? J(j also P
IIK(x, v) the projection operator in direction v to J( at x
n(x) the inward normals to J( at x
C(x) the normal cone to J( at x
a!
Part I
Theory of Proje'cted
Dynamical Systems
1
Chapter 1
Introduction and Overview
Competitive phenomena in diverse disciplines are often characterized by

the problem-specific equilibrium state. For example, in economics one
encounters the problem in which firms are involved in the production of a
commodity in a noncooperative fashion and one seeks to determine all the
firms' profit-maximizing production outputs, given that the consumers
view the product as being homogeneous and, hence, are indifferent as
to the producer or point of origin. In this classical problem, dating to
Cournot (1838), the equilibrium state is characterized by the property
that each firm's profit is maximal, given that the other firms' production
outputs are fixed. Another example, studied by operations researchers,
is the well-known traffic network equilibrium problem, in which users of
a congested, typica.lly urban, transportation system, seek to determine
their cost-minimizing routes of travel between origins and destinations.
The equilibrium concept here that states that only those paths that have
minimum cost will be used dates to Wardrop (1952).
The study of equilibrium problems in terms of their formulation,
qualitative analysis, and computation has been the focus of much re-
search in the past several decades and has given rise to the development
of a variety of mathematical methodologies. Examples of mathematical
formulations that have been used for equilibrium problems are: nonlin-
ear equations, optimization problems, complementarity problems, fixed
point problems, and, most recently, variational inequality problems. The
complexity of equilibrium problems, which are governed by entirely dis-
tinct equilibrium conditions, plus the driving need to not only address
qualitative properties of equilibrium problems, but also to compute so-
3
4 CHAPTER 1. INTRODUCTION AND OVERVIEW
lutions to what in practice may be large-scale problems, have been the

motivating forces behind much of the research.
Variational inequality theory, originally introduced for the study of
partial differential equations by Hartman and Stampacchia (1966), has in
a finite-dimensional framework established itself as a powerful methodol-
ogy for both the qualitative analysis of equilibrium problems and for the
development of rigorous algorithms, including decomposition algorithms,
which are well-suited for large-scale problems. It has been utilized to date
in the study of equilibrium problems ranging from the above-mentioned
oligopolistic market equilibrium problems and traffic network equilib-
rium problems to general economic and financial equilibrium problems.
In a sense, the evolution of variational inequality theory as a methodol-
ogy par excellence for equilibrium analysis and computation is natural
since the variational inequality problem contains, as special cases, the
mathematical programming problems from nonlinear equations to com-
plementarity problems. Consequently, mathematically it can capture
distinct problem formulations.
Finite-dimensional variational inequality theory, nevertheless, has, in
a sense, been static in scope since its focus has been on the analysis and
computation of the equilibrium state and, consequently, it has not pro-
vided a methodology for addressing the underlying dynamic behavior
of competitive systems. Although many equilibrium problems in eco-
nomics have also been approached through dynamical systems theory,
dynamical systems theory in its classical setting, where the right-hand
side of the ordinary differential equation is assumed to be continuous,
has not been able to adequately handle constraints. Since competitive
systems naturally arise in situations where there are limited resources,
be they natural, human, or financial, a methodology that is as powerful
as variational inequality theory for equilibrium analysis and as illuminat-
ing as dynamical systems theory for the study of the behavior of time
dependent systems, but can also handle the reality of limited resources,
is needed.
This book presents and develops the methodology that we call pro-
jected dynamical systems theory, which captures the desired features of
both variational inequality theory and classical dynamical systems the-
ory within the same framework. Said simply, a projected dynamical
system retains the features of a variational inequality problem since its
set of stationary points coincides with the set of solutions of the vari-
ational inequality problem. On the other hand, it is an ordinary dif-
5
ferential equation, and, hence, presents one with a dynamical model of

the competitive system in question. In contrast to a classical ordinary
differential equation, however, which has a continuous right-hand side,
the projected dynamical system's right-hand side is a projection oper-
ator and, hence, it is discontinuous. It is this feature that enables one
to incorporate the constraints of the variational inequality problem into
the dynamical system. It is also this feature that presents challenges for
theoretical analysis since classical results no longer immediately apply.
The principal goal of this book, hence, is to lay the foundations for
projected dynamical systems theory so that equilibrium problems that
have been, heretofore, studied principally in a static setting can now
be understood within a dynamical and behavioral framework. We aim
to bring the level of this theory to the same level attained by classical
theory in terms of both qualitative analysis and algorithmic procedures.
Towards the above ends, the book is organized into two main parts.
Part I presents the projected dynamical system, relates it to the varia-
tional inequality problem, and then establishes the theoretical founda-
tions. The analysis of the projected dynamical system is done through
the Skorokhod Problem (Skorokhod (1961)). This part discusses ex-
istence and uniqueness of the solution path, develops tools for stabil-
ity analysis, and provides algorithmic schemes for the computation of
equilibrium patterns. The results developed in Part I are then applied,
adapted, and expanded, when needed, in Part II in the context of partic-
ular models drawn from operations research, management science, and
economICS.
Each of the applications in Part II, beginning with the oligopolis-
tic market equilibrium problem in Chapter 5 and ending with the fixed
demand traffic network equilibrium problem in Chapter 8, is meant to
be self-contained, once one familiarizes onself with the theoretical foun-
dations in Part I. Chapters 7 and 8, which deal with dynamic traffic
problems, are companion chapters. Our emphasis is on the presentation
of the dynamic models, beginning with the previously derived formu-
lations of the equilibrium problems as variational inequality problems.
Particular emphasis is given to the illumination and understanding of
the underlying dynamics and economics of the specific application. The
specific applications were selected since they have been the focus of much
research in recent years using earlier methodologies in primarily a static
setting or when tackled in a dynamic context, assumptions have been
made to keep the dynamics and solutions away from the boundaries of
6 CHAPTER 1. INTRODUCTION AND OVERVIEW
the feasible set.
1.1 Sources and Notes
Originally, the focus of variational inequality theory, as introduced by

Hartman and Stampacchia (1966), was on infinite-dimensional problems,
typically drawn from applications in mechanics. The basic reference to
infinite-dimensional variational inequality theory is the book by Kinder-
lehrer and Stampacchia (1980). In 1980, Dafermos' identification that
the traffic network equilibrium conditions as formulated by Smith (1979)
were a variational inequality problem in finite dimensions, brought this
methodology to the attention of operations researchers and, later, to
economists.
Variational inequality theory has now been utilized for the qualitative
analysis of equilibrium patterns, in terms of existence and uniqueness of
solutions, as well as, for the study of sensitivity and stability of equilibria.
Some of the early work on this topic is due to Dafermos and Nagurney
(1984a, b) who addressed specific applications.
Algorithms for the computation of solutions to variational inequality
problems include the general iterative scheme of Dafermos (1983), which
contains as special cases the projection and the relaxation methods, and
a variety of decomposition algorithms, both serial and parallel, covered
in Bertsekas and Tsitsiklis (1989).
A reference to finite-dimensional variational inequality theory and
applications is the book by Nagurney (1993).
The stepping-stone for this book is the paper by Dupuis and Nagur-
ney (1993), which initiated the treatment of (projected) dynamical sys-
tems. Zhang and Nagurney (1995) then coined the name "projected"
dynamical system to emphasize that the right-hand side of the proposed
ordinary differential equation is a projection operator.
References
Bertsekas, D. P., and Tsitsiklis, J. N., Parallel and Distributed Com-
putation - Numerical Methods, Prentice-Hall, Inc., Englewood Cliffs,
New Jersey, 1989.
Cournot, A. A., Researches into the Mathematical Principles of
the Theory of Wealth, 1838, English translation, MacMillan, London,
England, 1897.
1.1. SOURCES AND NOTES 7
Dafermos, S., "Traffic equilibria and variational inequalities," Trans-

portation Science 14 (1980) 42-54.
Dafermos, S., "An iterative scheme for variational inequalities," Mathe-
matical Programming 26 (1983) 40-47.
Dafermos, S., and Nagurney, A., "Sensitivity analysis for the asymmetric
network equilibrium problem," Mathematical Programming 28 (1984a)
174-184.
Dafermos, S., and Nagurney, A., "Sensitivity analysis for the general
spatial economic equilibrium problem," Operations Research 32 (1984b)
1069-1086.
Dupuis, P., and Nagurney, A., "Dynamical systems and variational in-
equalities," Annals of Operations Research 44 (1993) 9-42.
Hartman, P., and Stampacchia, G., "On some nonlinear elliptic differen-
tial functional equations," Acta Mathematica 115 (1966) 271-310.
Kinderlehrer, D., and Stampacchia, G., An Introduction to Varia-
tional Inequalities and Their Applications, Academic Press, New
York, 1980.
Nagurney, A., Network Economics: A Variational Inequality Ap-
proach, Kluwer Academic Publishers, Boston, Massachusetts, 1993.
Skorokhod, A. V., "Stochastic equations for diffusions in a bounded re-
gion," Theory of Probability and its Applications 6 (1961) 264-274.
Smith, M. J., "Existence, uniqueness, and stability of traffic equilibria,"
Transportation Research 13B (1979) 295-304.
Wardrop, J. G., "Some theoretical aspects of road traffic research," in
Proceedings of the Institute of Civil Engineers, Part II, pp. 325-
378, 1952.
Zhang, D., and Nagurney, A., "On the stability of projected dynamical
systems," Journal of Optimization Theory and its Applications 85 (1995)
97-124.
Chapter 2
Projected Dynamical
Systems
Many systems in the modern world involve interacting agents compet-

ing for scarce resources and in such problems the concept of equilibrium
plays a central role. Examples of scarce resources include: many natu-
ral resources, financial budgets, limited production capacities, and the
systems themselves as in the design of the underlying network in, for ex-
ample, urban transportation systems. Examples of equilibrium problems
abound in operations research and management science, in economics,
and in engineering, and their study has helped to forge bridges between
different disciplines.
Equilibrium problems by their very nature tend to be complex and,
oftentimes, large-scale. Their study, hence, has been challenging both
from modeling as well as computational perspectives. Historically, equi-
librium problems have, in turn, been formulated as systems of nonlin-
ear equations, optimization problems, complementarity problems, fixed
point problems, or, more recently, variational inequality problems.
In this chapter we begin the development and synthesis of a new tool
for the study of equilibrium problems, which we call projected dynamical
systems theory. One of the notable features of this tool is its relation-
ship to the variational inequality problem, which has been found to be a
powerful unifying methodology since it captures, as special cases, math-
ematical programming problems problems ranging from nonlinear equa-
tions to complementarity problems. Moreover, the variational inequality
problem is intimately related to the fixed point problem. Projected dy-
9
10 CHAPTER 2. PROJECTED DYNAMICAL SYSTEMS
namical systems theory, however, as shall be demonstrated here, goes

substantially further than finite-dimensional variational inequality the-
ory since it allows for the study of the dynamics of equilibrium problems
which have, heretofore, been studied principally in the static setting of
equilibrium states.
In particular, we associate to a given variational inequality a certain
ordinary differential equation. This ordinary differential equation is in-
teresting both as a dynamical model for the system whose equilibrium
behavior is described by the variational inequality, and also because the
set of stationary points of the differential equation coincides with the set
of solutions to a variational inequality. The feasibility constraints in the
variational inequality correspond to discontinuities in the right-hand side
of the differential equation, which is a projection operator. Consequently,
this ordinary differential equation with a discontinuous right-hand side
is not amenable to analysis via the classical theory of dynamical systems
as discussed in such standard references as Coddington and Levinson
(1955), Lefschetz (1957), and Hartman (1964). However, by using the
equivalence between the solution to the ordinary differential equation
and the solution to a related pair of equations, the ordinary differential
equation can then be studied through a mapping of paths defined in
terms of the so-called Skorokhod Problem.
The Skorokhod Problem was introduced by Skorokhod (1961) as a
tool in the study of stochastic differential equations with a reflecting
boundary condition. Since then, the solution to this problem has been
used in the construction and analysis of a variety of deterministic and
stochastic processes that are constrained to stay in a given fixed set.
Hence, it seems reasonable that the Skorokhod Problem would be useful
in the study of ordinary differential equations whose stationary points
correspond to equilibrium points of competitive systems, since equilib-
rium points for such systems are required to satisfy the problem-specific
constraints. For example, in operations research and economics, con-
straints are a natural component of systems since we live in a world not
only oflimited resources, but systems are often subjected to government
regulations.
The advantages of the connections established between variational
inequalities, ordinary differential equations, and the Skorokhod Prob-
lem are many. First and foremost, such a dynamical systems approach
yields insights into the behavior of competitive systems, which, as men-
tioned earlier, have been studied mainly in a static setting at an equilib-
11
rium point. In addition, one gains access to a powerful theory for both
qualitative and quantitative analyses. Further, one may avail oneself of
alternative algorithmic schemes for determining equilibria. Moreover,
the development of a deterministic dynamical model via the Skorokhod
Problem introduces many of the tools and techniques needed for more
elaborate stochastic models. Finally, opportunities for the further study
of an entirely new class of dynamical system now present themselves
along with the discovery of new phenomena in competitive systems.
This chapter is organized as follows. In Section 2.1 the finite-dimen-
sional variational inequality problem is reviewed and the basic results of
existence and uniqueness of its solution under monotonicity conditions
are presented. For completeness and easy reference, we also highlight the
relationship of the variational inequality problem to well- known problems
in mathematical programming, which have been utilized in the past for
equilibrium modeling and computation. In particular, we recall the re-
lationship of the variational inequality problem to a system of nonlinear
equations, to optimization problems, complementarity problems, and to
fixed point problems.
In Section 2.2, we introduce the definition of a projected dynami-
cal system, which evolves within a constraint set K. Its equilibrium or
stationary points are identified with the solutions to the corresponding
variational inequality problem with the same constraint set. For theoret-
ical soundness, we state in a theorem the fundamental properties of such
a projected dynamical system in regards to the existence and uniqueness
of solution paths to the governing ordinary differential equation. How-
ever, we leave the proof of the main theorem to Section 2.3 since the
proof is rather technical and may be omitted at the first reading of the
book. Also, in Section 2.2, an interpretation of the ordinary differential
equation that defines the projected dynamical system is provided, along
with a description of how the solutions may be expected to behave.
In Section 2.3, we pick up the task of establishing the theoretical
properties of a projected dynamical system. The difficulty in carrying out
this is that the right-hand side of the ordinary differential equation that
defines the projected dynamical system is discontinuous. To overcome
this obstacle, the Skorokhod Problem is introduced here. This section is
further divided into four subsections. Subsection 2.3.1 provides a simple
discrete time model of a "competitive system" to motivate the need
and definition of the Skorokhod Problem. Subsection 2.3.2 states the
Skorokhod Problem in the form appropriate for this book, and introduces
the relationship between a solution to the Skorokhod Problem and the

corresponding projected dynamical system. Utilizing such a relationship,
Subsections 2.3.3 and 2.3.4 establish the existence and uniqueness of
solution paths.
2.1 The Variational Inequality Problem

This section presents the definition of a variational inequality (VI) prob-
lem and recalls some of its relationships to other mathematical program-
ming problems. Some basic results on the existence and uniqueness of
the solution to a variational inequality problem are then given using
monotonicity conditions. Monotonicity conditions are crucial concepts
throughout this book and will be exploited later in Chapter 3 in the study
of stability analysis of projected dynamical systems and in Chapter 4 in
the study of the convergence of discrete time algorithms.
Definition 2.1 (The Variational Inequality Problem)
For a closed convex set K C Rk and vector function F : K ~ Rk,
the finite-dimensional variational inequality problem, VI(F, K), is to de-
termine a vector x* E K, such that
{F(x*l, x - x*} ~ 0, \Ix E K, (2.1)
where (-,.) denotes the inner product in Rk.

Remark
It is direct from the definition that the necessary and sufficient con-
dition for x* to be a solution to VI(F,K) is that
-F(x*) E C(x*),
where C(x) denotes the normal cone of K at x defined by
C(X)={YER k : (yT,x'-x) ~O, \lx'EK}.
A geometric depiction of the variational inequality problem is given

in Figure 2.1.
As is well-known, the variational inequality problem relates to many
interesting mathematical problems such as: nonlinear equations, opti-
mization problems, complementarity problems, and fixed point prob-
lems. These problems are introduced in the subsequent propositions,
2.1. THE VARIATIONAL INEQUALITY PROBLEM 13
....•.•..•
..................
x#
.. '
.'..... ' ............... :~.~~al Cone

...........
Feasible Set K
Figure 2.1: Geometric interpretation of the variational inequality prob-

lem
with the intention of highlighting the connection between these mathe-

matical formulations and the variational inequality problem. Since the
proofs of these propositions are classical, they are omitted. The in-
terested reader is referred to the book by Nagurney (1993a) and the
references therein.
First, if one restricts the constraint set K to be the entire space Rk,
then the variational inequality problem VI(F, K) is equivalent to the
problem of solving a system of equations, as stated in the following
Proposition 2.1 (A System of Nonlinear Equations)
Let F: Rk 1--* Rk be a vector function. Then x* E Rk solves
the variational inequality problem VI( F, Rk) if and only if x* solves the
system of equations
F(x*) = o. (2.2)
A second special case of the variational inequality problem is the

complementarity problem, where K is taken as the nonnegative orthant
Ri·
Proposition 2.2 (The Complementarity Problem)

x* solves VI(F, Ri) if and only if x* solves the following complemen-
tarity problem:
Find x* ~ 0 such that
F(x*) ~ 0, and (F(x*l,x*) = o. (2.3)
Thirdly, when a realization of F is specified by the gradient of a scalar

function f, we have the relationship between an optimization problem
and a variational inequality problem revealed in the following
Proposition 2.3 (An Optimization Problem)
Let K C Rk be closed and convex and f: K 1--+ R be a continuously
differentiable function. If x* E K solves the optimization problem:
minf(x), (2.4)
xEK
then x* solves the variational inequality problem VI(V f, K).

On the other hand, if f( x) is a convex function and x* solves the
VI(V f, K), then x* is a solution to the optimization problem (2.4).
Finally, any variational inequality problem can be regarded as a fixed
point problem defined by a projection map, as indicated in the subse-
quent proposition.
Proposition 2.4 (A Fixed Point Problem)
x* is a solution to VI(F, K) if and only if for any (3 > 0, x* is a fixed
point of the projection map:
x* = PK(X* - (3F(x*)), (2.5)
where PK is defined as:
PK(X) = argmin Ilx - zll, (2.6)

zEK
and 11·11 denotes the Euclidean norm.

Whenever there is no chance for confusion, PK will simply be denoted
by P.
A basic existence result for VI(F, K) follows directly from an appli-
cation of Proposition 2.4 and Brouwer's Fixed Point Theorem.
2.1. THE VARIATIONAL INEQUALITY PROBLEM 15
Theorem 2.1
If K is compact and convex and F( x) is continuous on K, then the
variational inequality problem VI(F, K) admits at least one solution x*.
The local and global concepts of monotonicity of a vector function F
are introduced in the following definitions.
Definition 2.2 (Monotonicity)
F( x) is said to be locally monotone at x* if there is a neighborhood
N(x*) of x* such that
((F(x) - F(x*)?,x - x*) 2: 0, 'r:/x E N(x*). (2.7)
F( x) is monotone at x* if (2.7) holds true for all x E K. F( x) is

said to be monotone if (2.7) holds for all x, x* E K.
Definition 2.3 (Strict Monotonicity)
F( x) is said to be locally strictly monotone at x* if there is a neigh-
borhood N(x*) of x* such that
((F(x) - F(x*)?,x - x*) > 0, 'r:/x E N(x*), x # x*. (2.8)
F( x) is strictly monotone at x* if (2.8) holds true for all x E K.

F(x) is said to be strictly monotone if (2.8) holds for all x,x* E K,
x # x*.
Definition 2.4 (Strong Monotonicity)
°
F( x) is said to be locally strongly monotone at x* if there is a neigh-
borhood N(x*) of x* and", > such that
((F(x) - F(x*)?,x - x*) ~ ",lIx - x*1I2, 'r:/x E N(x*). (2.9)
F(x) is strongly monotone at x* if (2.9) holds true for all x E K.

F(x) is said to be strongly monotone if (2.9) holds for all x,x* E K.
The monotonicity of a vector function F is closely related to the
positive definiteness of its Jacobian matrix
V' F(x) = ( 8Fi(X)) ,

8xj ..
I,J=1,2, ... k
as illustrated in the following proposition (see Nagurney (1993a) for a

proof).
Proposition 2.5
Suppose that F( x) is continuously differentiable on K.
(i). If the Jacobian matrix V F(x) is positive semidefinite, i.e.,
(2.10)
then F( x) is monotone on K.
(ii). IfVF(x) is positive definite, i.e.,
zTVF(x)z > 0, Vz =j:. O,z E Rk,Vx E K, (2.11)
then F( x) is strictly monotone on K.

(iii). If V F( x) is strongly positive definite, i. e.,
(2.12)
then F( x) is strongly monotone on K.

(iv). More generally, when (2.10), (2.11), and (2.12) hold locally for
all x in a neighborhood N(x*) of x* (instead of K), then, respectively,
F( x) is locally monotone, locally strictly monotone, and locally strongly
monotone, on N(x*).
We will notice, through the following theorems, that monotonicity
plays a similarly crucial role in the study of the variational inequality
problem as convexity does in the study of optimization problems. For a
proof to these theorems, the reader is referred to Nagurney (1993a) and
the references therein.
Theorem 2.2
Suppose that F( x) is strictly monotone on K, then the variational
inequality problem VIC F, K) has at most one solution.
Theorem 2.3
Suppose that F( x) is strongly monotone. Then there exists precisely
one solution x* to VIC F, K).
The theory of variational inequalities is concerned principally with
obtaining qualitative properties of the solution x*, such as describing
conditions on F (and K) that guarantee existence and uniqueness of
solutions, with the sensitivity analysis of solutions, under the pertur-
bation of the function F and the feasible set K, as well as, with the
construction of algorithms for the computation of the solution patterns.
2.2. THE PROJECTED DYNAMICAL SYSTEM 17
Finite-dimensional variational inequality theory by itself, however, pro-

vides no framework for studying the underlying dynamics of systems,
since it considers only equilibrium solutions in its formulation. Hence,
in a sense, it provides a static representation of a system at its "steady
state."
One would, therefore, like a theoretical framework that permits one to
study a system not only at an equilibrium point, but also in a dynamical
setting. In this way one can gain insights into the behavior of the system
throughout time. Towards this end, we introduce projected dynamical
systems in the next section.
2.2 The Projected Dynamical System

In this section the definition of a projected dynamical system (PDS) is
presented with respect to a closed convex set K, which is usually the
constraint set underlying a particular application, and a vector field F
whose domain contains K. It is expected that such projected dynamical
systems will provide mathematically convenient approximations to more
"realistic" dynamical models that might be used to describe non-static
behavior. Such dynamical models in the context of specific applica-
tions are the subject of Part II of this book. The relationship between
a projected dynamical system and its associated variational inequality
problem with the same constraint set is then established. Finally, funda-
mental properties such as the existence and uniqueness of the solution to
the ordinary differential equation (ODE) that defines such a projected
dynamical system are provided, but with the proofs left to. Section 2.3.
The machinery employed there to study these properties is the Skorokhod
Problem.
The identification of a solution to a variational inequality problem
as a fixed point of a projection map revealed in Section 2.1 has been
useful in the past in providing not only a geometric interpretation of
the variational inequality problem, but also in suggesting algorithms for
its solution, notably the projection method (see Dafermos (1983)). The
subsequent analysis of a projected dynamical system, whose equilibrium
points correspond to solutions of the variational inequality problem, will
also utilize projection operators and a geometric interpretation.
Let K C Rk be closed and convex. Denote the boundary and interior
of K, respectively, by 8K and KO. Given x E 8K, define the set of inward
normals to K at x by
n(x) = b: Ih'lI = 1, and ("/,x - y) ~ 0, 'v'y E K}. (2.13)
For notational convenience later on, we define n( x) to be b : Ih'lI = 1}

for x in the interior of K.
When K is a convex polyhedron, K takes the form nf:lKi' where
each Ki is a closed half-space with inward normal ni. Let P be the
norm projection, defined in (2.6). Then P projects onto K "along n,"
in that if y E K, then P(y) = y, and if y ¢ K, then P(y) E oK, and
°
P(y) - y = a"Y for some a > and "Y E n(P(y)).
Given x E K and v E Rk, define the projection of the vector v at x
(with respect to K) by
IIK ( x,v ) Iim (PK(x+6v)-x)

= 8-+0 l: • (2.14)
v
Whenever there is no chance for confusion, we write IIK(X,V) simply as

II(x, v).
Recall the following result from Dupuis (1987), which gives a geo-
metric interpretation and which will be used here frequently.
Lemma 2.1
(i). If x E KO, then
IIK(X, v) = v. (2.15)
(ii). If x E oK, then
IIK(X,V) = v + ,B(x)n*(x), (2.16)
where
n*(x) = arg max (v T , -n), (2.17)
nen(x)
and
,B(x) = max{O, (v T , -n*(x))}. (2.18)
Remark
It is obvious from Lemma 2.1 that
(2.19)
The class of pertinent ordinary differential equations that this book

focuses on takes the form:
x = IIK(X, -F(x)), (2.20)
where K is a closed convex set, corresponding to the constraint set in a

particular application, and F( x) is a vector field defined on K.
Note that the right-hand side of the ordinary differential equation
(2.20) is associated with a projection operator and is, hence, discontinu-
ous on the boundary of K. Therefore, one needs to articulate what one
means by a solution to an ODE with a discontinuous right-hand side.
Definition 2.5
We say that the function x : [0,00) 1-+ K is a solution to the equa-
tion x = II( x, - F( x » if x(·) is absolutely continuous and if x( t) =
II(x(t), -F(x(t))), save on a set of Lebesgue measure zero.
In order to now distinguish the pertinent ODEs (2.20) from the clas-
sical ODEs with continuous right-hand sides, we will denote (2.20) by
ODE(F,K).
For any Xo E K as an initial value, we associate with ODE(F, K) an
initial value problem, IVP(F, K, xo), defined as:
x= IIK(X, -F(x)), x(O) = Xo. (2.21)
One sees directly that if there is a solution cPxo(t) to the initial value
problem IVP(F,K,xo), with cPxo(O) = Xo E K, then cPxo(t) always stays
in the constraint set K for t ~ O. However, qualitative properties such
as the existence and uniqueness of the solution to IVP(F, K, xo) have not
been covered by the classical theory of dynamical systems, where it is
assumed that the right-hand side of the ODE is continuous. The study
of these properties, in fact, has partly motivated this book.
We now present the definition of a projected dynamical system, gov-
erned by such an ODE(F, K), which, correspondingly, will be denoted
by PDS(F,K).
Definition 2.6 (The Projected Dynamical System)
Define the projected dynamical system PDS(F, K) as the map ~
K X R 1-+ K where
~(x, t) = cPx(t)
solves the IVP(F,K,x), i.e.,
For convenience, we will sometimes write X· t or x(t) for ~(x, t)

to denote the solution trajectory for IVP(F, K, x), which passes through
x at time t = o.
The following example geometrically depicts the difference between
a classical dynamical system and a projected dynamical system with a
constraint set, in the same vector field.
Example 2.1
Let F : R2 ~ R2 be the vector field given by
F1(xt,X2) = -X2, F2(xt,X2) = 4Xl
and let the constraint set K be the rectangle ABeD shown in both
Figure 2.2 and Figure 2.3. lllustrated in Figure 2.2 are a portrait of the
(classical) dynamical system defined by
x = -F(x)
and its particular trajectory passing through Xo.
lllustrated in Figure 2.3 are a portrait of the projected dynamical
system PDS(F, K) defined by
x = IIK(X,-F(x))
and its trajectory passing through the same point Xo.
Definition 2.7 (An Equilibrium Point)

The vector x* E K is an equilibrium point or stationary point of the
projected dynamical system PDS( F, K) if
0= IIK(X*, -F(x*)).
In other words, we say that x* is an equilibrium point or a stationary

point if, once the projected dynamical system is at x*, it will remain at
x* for all future times.
A A
Figure 2.2: Portrait of a classical dynamical system and a particular

trajectory
c c
A A
D D
Figure 2.3: Portrait of a projected dynamical system and a particular

trajectory
Remark
It is clear from Definition 2.7 that x* is an equilibrium point of the
projected dynamical system PDS(F, K) if the vector field F vanishes at
x*. The contrary, however, is only true when x* is an interior point of
the constraint set K. Indeed, when x* lies on the boundary of K, we
may have F(x*) ;j; o.
Note that for classical dynamical systems, the necessary and sufficient
condition for an equilibrium point is that the vector field vanish at that
point. The proposition below presents another representation of this
fact, which identifies the equilibrium points of a (classical) dynamical
system with the solutions of a system of nonlinear equations, which is a
static framework.
Proposition 2.6
The equilibrium points of the (classical) dynamical system governed
by :i; = - F( x) coincide with the solutions to the system of nonlinear
equations F( x) = o.
Proposition 2.6 reveals the connection between the "static" world of
nonlinear equations and the "dynamic" world of classical dynamical sys-
tems. The analogy of Proposition 2.6 to the environment of constraints
that unveils the relationship between a variational inequality problem
VI(F, K) and its associated projected dynamical system PDS(F, K) is
given in the following theorem. In Figure 2.4 we illustrate the rela-
tionships between the static worlds of nonlinear equations and finite-
dimensional variational inequalities and the dynamic realms of classical
dynamical systems (without constraints) and projected dynamical sys-
tems (with constraints).
Theorem 2.4
Assume that K is a convex polyhedron. Then the equilibrium points
of the PDS( F, K) coincide with the solutions of VIC F, K).
Proof:
The statement is a consequence of the fact that
II( x * - F( x *)) = 0 -¢::::::::>

{either F(x*) = 0, or
, x* E oK; F(x*) = an, a > 0, n E n(x*),
(2.22)
which is equivalent to VI(F, K) .•
Static Problems
Dynamic Problems
Figure 2.4: Relationships between nonlinear equations and variational

inequality problems and classical and projected dynamical systems
Remark
Theorem 2.4 not only establishes the equivalence between the set
of equilibria of a projected dynamical system and the set of solutions
of a variational inequality problem but also suggests that the finite-
dimensional variational inequality problem, which has been used to study
a plethora of equilibrium problems in operations research and manage-
ment science and in economics is, indeed, a natural framework for the
study of equilibrium problems at their equilibrium states.
Before stating the fundamental theorem about the projected dynam-
ical systems, we introduce the following assumption needed for the the-
orem.
Assumption 2.1
There exists a B < 00 such that the vector field - F : Rk 1-+ Rk
satisfies the linear growth condition: IIF(x)1I $ B(l + IIxll) for x E K,
and also
(-F(x) + F(y)f,x - y} $ Bllx - y1l2, 't/x,y E K. (2.23)
Theorem 2.5 (Existence, Uniqueness, and Continuous Depen-

dence)
Assume Assumption 2.1. Then
(i). For any Xo E K, there exists a unique solution xo(t) to the initial
value problem {2.21};
(ii). If Xn --+ Xo as n --+ 00, then xn(t) converges to xo(t) uniformly on
every compact set of [0, 00).
Proof:
The first part of the theorem is a conclusion from the combination
of Theorem 2.7 and Theorem 2.8, and the second part of the theorem is
just a rephrasing of Theorem 2.9. Therefore, we defer the proof of this
theorem to Section 2.3 . •
Remark
The second statement of Theorem 2.5 is sometimes called the contin-
uous dependence of the solution path to ODE(F, K) on the initial value.
By virtue of Theorem 2.5, the PDS( F, K) is well-defined and inhabits K
whenever Assumption 2.1 holds.
In addition to monotonicity conditions, Lipschitz continuity is an-
other condition that plays an important role in the study of variational
inequality problems. It also is a critical concept in the classical study of

dynamical systems.
Definition 2.8 (Lipschitz Continuity)
°
F : K 1-+ Rk is locally Lipschitz continuous if for every x E K there
is a neighborhood N (x) and a positive number L( x) > such that
IIF(x') - F(x")11 ~ L(x)lIx' - xliII, Vx', x" E N(x). (2.24)
When (2.24) holds uniformly on K for some constant L > 0, i.e.,
IIF(x') - F(x")11 ~ Lllx' - xliII, Vx', x" E K, (2.25)
then F is said to be Lipschitz continuous on K.

Remark
Any continuously differentiable function F is locally Lipschitz.
If F is differentiable and the operator norm of V'F(x), IIIV'F(x)lIl,
defined by
IIIV'F(x)1I1 = max IIV'F(x)zll, (2.26)
II z l19
as a function of x is uniformly bounded on K, then F is Lipschitz con-
tinuous on K.
Lipschitz continuity implies Assumption 2.1 and is, therefore, a suf-
ficient condition for the fundamental properties of projected dynamical
systems stated in Theorem 2.5.
For easy reference, we present Gronwall's Inequality, which has been
very useful in the study of dynamical systems and will also be utilized
later in this book. The following lemma, due to T. H. Gronwall, can be
found in many ODE books, such as those by Hartman (1964), Hirsch
and Smale (1974), and Perko (1991).
Lemma 2.2 (Gronwall's Inequality)
Let u : [0, I] 1-+ R be a continuous nonnegative function. If C ~ 0,
V ~ 0, are such that
(2.27)
Then
u(t) ~ Ce Vt , Vt E [0, I]. (2.28)
Feasible Set K
.. rr---__---..!~
.' .'
.'
.'
.' .'
.'.'
............
1········· !
IJa ..- ......................................... -_ ............................................... --- ................. -........... -..
: ~.~
.....
Figure 2.5: A trajectory of a projected dynamical system that evolves

both in the interior and on the boundary of the feasible set J(
2.3. THE SKOROKHOD PROBLEM 27
The behavior of the dynamical system is now described. One may

refer to Figure 2.5 for an illustration of this behavior.
If x(t) E K D, then the evolution of the solution is directly given in
terms of F : :i; = - F( x ). However, if the vector field - F drives x to
oK (i.e., for some t one has x(t) E oK and -F(x(t)) points "out" of
K) the right-hand side of (2.21) becomes the projection of -F onto oK.
The solution to (2.21) then evolves along a "section" of oK, e.g., OKi
for some i. At a later time the solution may re-enter K D, or it may enter
a lower dimensional part of oK, e.g., OKi n oKj. Depending on the
particular vector field F, it may then evolve within the set OKi n oKj,
re-enter OKi, enter oKj, etc.
2.3 The Skorokhod Problem

In Section 2.2 a projected dynamical system and its governing ODE
(F, K) were defined. Theorem 2.5 also listed the fundamental properties
such as the existence and uniqueness of the solution to ODE(F, K) and
its continuous dependence on the initial value chosen. This section is
dedicated to fulfilling the proof of this basic theorem. One sees that the
primary difficulty in carrying out this task is the discontinuity of the pro-
jection operator x t-+ II(x,-F(x)) on the right-hand side ofODE(F,K).
The main tool that will be used to overcome this obstacle is the solution
to the Skorokhod Problem (SP).
In order to motivate the definition and further motivate the need
for the SP we consider first a simple discrete time model of a "compet-
itive system." We then state the SP in the form needed for this book,
and summarize important properties of the solution. These properties
of the SP are subsequently used to extend earlier results concerning ba-
sic qualitative properties (existence and uniqueness) of the solution to
ODE(F, K). In fact, as will become apparent by the end of this section,
for many problems, the properties of the solution to the SP allow a re-
duction to the setting where the standard arguments of classical ODE
theory can be adapted. The section concludes with a theorem showing
that a scaled sequence of the discrete time models (including those in-
troduced at the beginning of this section) converges to a solution of the
oD E( F, K). This theorem is characteristic of the type of approximation
and convergence analysis that can be carried out for the ODE(F, K) by
making use of the properties of the solution to the SP.
2.3.1 A Discrete Time Example

Let ]( C Rk be a closed convex polyhedron, and recall that P : Rk t-+ ] (
is the projection that maps a given point x to the closest point in ](.
Recall also that P projects x onto ]( "along the inward normal," in the
sense that for any x rt ]( we have P( x) - x = an for some n E n( P( x ))
and a > O. Let x E ]( be given. Suppose that for f > 0 we set Xo = x
and recursively define:
(2.29)
where n in (2.29) denotes the time index.

Such models, along with stochastic versions, have been common in
the theory of adaptive algorithms (cf. Kushner and Clark (1978)) where
there is a "feasibility" constraint that must be satisfied by each iterate
of the algorithm. In order to place such an algorithm in the context of a
competitive system, consider the example of a classical oligopoly. In an
oligopoly problem (cf. Cournot (1838)), a number of competing firms are
involved in the production of a homogeneous commodity and each firm
seeks to determine its profit or utility maximizing production output,
until no firm can improve upon its profit or utility by altering its level
of output. In this application, following (2.29), the firms would adjust
their production quantities Xn by -F(x n ), where -F(x n ) is the vector
of the firms' marginal profits. The production quantities are constrained
to be nonnegative.
Note that in such an application, which is the focus of Chapter 5, it
is natural to use the projection mechanism P, since P in this application
simply prohibits negative production levels, while leaving nonnegative
production levels unchanged.
Suppose now that f > 0 is small. In such a case an approximating
continuous time model is often useful. For example, the definition of the
discrete time model involves a nested sequence of the nonlinear projec-
tions. "Untangling" the effect of these projections could be very difficult
for the discrete time model. (It may even be the case that the "true"
system evolves in continuous time, and one may wish to substitute the
discrete time model above by a more "realistic" continuous time model.)
Let D([O, oo)j Rk) denote the space of functions from [0,00) to Rk that
are continuous from the right and that have limits from the left. We
then interpolate the iterates {x~, n E N} into a continuous time process
via the definition:
(2.30)
The particular scaling in time used in this definition is necessary if one is

to have a well-defined and nontrivial limit of x E (.) as f - t O. In fact, it will
be established in Theorem 2.8 that as f - t 0, x E converges uniformly in t
in any compact set to the solution of (2.21). The role played by P(·) here
in maintaining feasibility will be inherited by 11(·,·) defined by (2.14).
However, it is clear that in order to study the limiting behavior of x E (.)
one must have some means of comparing the effects of the projection
operator on the mapping (Yo, YI, ... ) ~ (xo, Xl, ... ) defined by:
where {Yn, n = 0,1, ... } is a more or less arbitrary sequence. This is

done in the following section by introducing the Skorokhod Problem.
2.3.2 The Skorokhod Problem

The Skorokhod Problem defines a mapping r from the space D([O, 00);
Rk) of paths into itself. The mapping of a path 'IjJ(.) produces what
may be viewed as the "natural" projected version of'IjJ that is consistent
with the projection mechanism P on Rk. The definition of the SP is
complicated by the fact that in general one desires a definition for ill
'IjJ E D([O, 00); Rk). For the purposes of this book the following definition
is sufficient. For a function a function f : [0,00) ~ Rk, let Ifl(T)
denote the total variation of f(·) on the interval [0, T]. Let IA denote
the indicator function of the set A, i.e., IA(X) = 1 if X E A and IA(X) = 0
if X ¢ A.
Definition 2.9 (The Skorokhod Problem)
Let 'IjJ E D([O, 00); Rk) with 'IjJ(0) E K be given. Then (</>, "I) solves
the SP (with respect to K) if for all t E [0,00) one has
(i). </>(t) = 'IjJ(t) + "I(t), </>(0) = 'IjJ(0),
(ii). </>(t) E K,
(iii). 1"II(t) < 00,
(iv). 1"II(t) = f(o,t] I8K(</>(s))dl"ll(s),
(v). there exists measurable, : [0,00) ~ Rk such that ,(s) E n(</>(s))
(dl"ll a.s.) and "I(t) = f(o,t] ,(s)dl"ll(s).
Consequently, 4J never leaves K, and '" changes only when 4J(t) E oK,
in which case the change points in one of the directions n(4J(t».
To see that the definition corresponds in some sense with the mapping
that is intuitively desired, we examine the case of (2.29), (2.30). Define
y~ = Xo + Ei;l E- F(xD and yf(t) = y~ for t E [nE, nE + E). Note that
yf(.) is an "unconstrained" path that evolves freely in Rk, and that the
constraint mechanism enters the definition of y~ only through the values
{xi,i = 0,1, ... ,n -1}. One would like to verify that Xf = r(yf). Thus,
if in the definition of the SP 4J = Xf and 'l/J = yf, then we must take
'" = Xf - yf. Properties (i), (ii), and (iii) are easily verified. To check
(iv) and (v), let t be ofthe form nE. Clearly, dl",l(t) = 0 ift is not ofthis
form, since Xf(t) - yf(t) is constant in each of the intervals (nE, nE + E).
Then
= P(x~_l - EF(x~_l» - X~_l + EF(x~_l) == v~.

By definition, 1",I(nE) -1",I(nE-) = Iv~l, while P(x) E KO if and only if
x E KO. Hence, if x~ E KO then it must be true that X~_l +E-F(x~_l) E
KO, in which case v~ = O. We conclude that 1",I(nE) -1",I(nE-) i:- 0 only
when xf(nE) = x~ E oK, which implies (iv). For n such that x~ E oK
the definition of P implies v~ = an, where a ~ 0 and n E n(x~). Thus,
(v) also holds.
Although the definitioIl appears formidable, all the properties of so-
lutions to the SP that will be needed are summarized in the following
theorem.
Let DBV([O, (0); Rk) denote the set of all 'l/J E D([O, (0); Rk) such
that 'l/J has bounded total variation on [0, T] for each T < 00.
Theorem 2.6
Let K be a convex polyhedron. Then given any 'l/J E DBV([O,oo);R k )
with 'l/J(O) E K, there exists a unique solution (4J,,,,) to the SP. Let r('l/J)
denote the mapping 'l/J ~ 4J that is defined by the SP. Then r(·) is Lip-
schitz continuous in the sense that there exists C E [0,(0) such that for
any'l/Jl and'l/J2 in DBV([O, (0); Rk) with 'l/Jl(O) E K and 'l/J2(0) E K,
sup /Ir('l/Jt}(t) - r('l/J2)(t)/1 :5 C sup /I'l/Jl(t) - 'l/J2(t)/I. (2.31)

tE[O,oo) tE[O,oo)
Define D([O, T]; Rk) as the set of functions from [0, T] to Rk that are
continuous from the right, have limits from the left. Let DBV([O, T]; Rk)
denote the 'IjJ E D([O, T]; Rk) tha,t have bounded total variation on [0, T].
We topologize D([O, 00); Rk) so that convergence is equivalent to conver-
gence of the restrictions to [0, T] with respect to the sup norm for all
T E (0,00). If K has nonempty interior, then the conclusions of Theo-
rem 2.6 extend to all 'IjJ E D([O, 00); Rk). Even if K has empty interior,
the fact that DBV([O, T]; Rk) is dense in D([O, T]; Rk) with respect to
the sup norm metric means r(·) has a unique Lipschitz continuous ex-
tension to all of D([O, 00); Rk) (Dupuis and Ishii (1991)). However, since
all the paths that must be dealt with in the remainder of this chapter
have bounded variation, the result as stated is sufficient.
In the next two subsections Theorem 2.6 is applied to establish basic
properties of the ODE(F, K).
2.3.3 An Equivalent Problem and Uniqueness of Solu-

tions to the ODE(F, K)
To prove the first part of Theorem 2.5, it is clearly sufficient to show
the existence and uniqueness of a solution to ODE(F, K) on the interval
[0, T], where T E (0,00) is arbitrary. Let rT( 'IjJ)(.) denote the restriction
of r( 'IjJ)(.) to [0, T]. It is elementary to show that rT( 'IjJ)(.) depends only
on the restriction of'IjJ to [O,T], i.e., rTl('IjJ)(t) = rT2('IjJ)(t) whenever
TI, T2 ~ t. We may consider rT as a mapping from DBV([O, T]; Rk) into
itself. It follows from Theorem 2.6 that each r T is Lipschitz with the
same constant as r. For the remainder of this section T E (0,00) is fixed,
and solutions only over the interval [0, T] are considered.
In order to prove the existence and uniqueness of solutions to the
IVP (2.21) we will consider the problem of solving:
y = -F(x), x = rT(Y), x(O) = Y(O) = xo. (2.32)
The equation y(t) = -F(x(t)) is understood to hold everywhere except

perhaps for a set of Lebesgue measure zero.
The connection between (2.32) and (2.21) is made precise in the
following theorem.
Theorem 2.7
If the pair (x, y) solves (2.32), then the x component of this pair solves
the IVP (2.21). Conversely, for any solution x to (2.21) there exists a
function y E C([O, T]j Rk) such that (x, y) solves (2.32). Finally, the
IVP{2.21) has a unique solution.
Proof:
To begin, let (x, y) solve (2.32). Since -F(·) satisfies a linear growth
condition the quantity B = ess sup{IIy(t)II : t E [0, Tn is finite, where ess
°
sup stands for essential supremum. Obviously, B is a Lipschitz constant
for y(.). Let r > be arbitrary. If for any z E K we define the function
¢zCt) == z for t E [0, r], then it is trivially true that ¢z = r T( ¢z). By
combining this fact with the Lipschitz property of r T, one sees that for
any ¢ E DBv([O, r]j Rk):
sup IIrT(¢)(t) - rT(¢)(O)II ~ C sup II¢(t) - ¢(O)II. (2.33)

tE[O,Tj tE[O,Tj
From this and the fact that y(.) is Lipschitz with constant B on [O,T],
onde concludes that x(·) is Lipschitz with constant CB. In particular,
x(·) is absolutely continuous on [0, T].
If we define z(t) = x(t) - yet) for t E [O,T], then x = rT(y) implies
that (x, z) solves the SP for y. Since z(·) is obviously Lipschitz contin-
uous, the definition of the SP implies the existence of measurable func-
tions a: [O,T] ~ [0,00) and I: [O,T] ~ Rk such that x-v = a,1aK(X)
and ,et) E n(x(t)) a.s. in t E [0, T]. Since equation (2.32) states that
y = -F(x), we have x = -F(x) + a,1aK(X) a.s. in t E [O,T].
Let L be any linear subspace of Rk. It is a standard fact from real
analysis (d. p. 335 of Ethier and Kurtz (1986)) that for any absolutely
continuous function 4> : [0, T] ~ Rk the set
{t: 4>(t) E L,¢(t) ¢ L}

has Lebesgue measure zero. It follows from the fact that K is a convex
polyhedron that the Lebesgue measure of the set
{t: x(t) E 8K,(x(tf,n) "I ° for some n E n(x(t))}

is zero. Hence, (nT, [-F(x(t)) + a(t)-y(t)]IaK(x(t))) = °
for all n E
n( x( t)), a.s. in t E [0, T]. One concludes that for a.e. t E [0, T] that
°
-F(x(t))IaK(X(t)) can be written in the form vet) - a(t)-y(t)IaK(X(t)),
where (v(tf, n) = for all n E n(x(t)). Using this decomposition, one
directly calculates via (2.6) that
II(x(t), -F(x(t))) = -F(x(t)) + a(t)-y(t)IaK(X(t))

a.s. in t E [O,T]. Since x = -F(x)+a'YlaK(x), x solves x = TI(x, -F(x)).

Next assume that x solves x = TI( x, - F( x)) and we prove the exis-
tence of y such that (x, y) solves (2.32). Clearly all that is required is to
show that if y is defined by iJ = -F(x) and yeO) = Xo, then x = rT(y),
°
i.e., (x, x - y) solves the SP. We use the fact that TI(x, v) is always of
the form v + a'Y whenever x E oK, where a 2: and l' E n( x). This im-
plies <p(t) = x(t) = f~ [-F(x(s)) + a(sh(s)IaK(x(s))]ds, 'IjJ(t) = yet) =
f~ -F(x(s))ds, and q(t) = x(t) - yet) = f~ a(sh(s)IaK(X(s))ds. One
may easily check that all parts of the definition of the SP are satisfied.
Thus (x, x - y) solves the SP.
We next prove the uniqueness of solutions to (2.21). Since we are
considering the case of projection along the inward normal, we can apply
an argument that appears in Fillipov (1960).
°
Recall that TI( x, v) = v if x E K O, and that for x E oK we have
TI(x, v) = v+ an where a 2: and n E n(x). Let Xi; i = 1,2, be solutions
to (2.21). Then a.s. in t E [O,T] one has
~ :t IIxl(t) - x2(t)1I 2
= ((Xl(t) - X2(t)?, TI(Xl(t), -F(Xl(t))) - TI(X2(t), -F(X2(t))))

= ((XI(t) - X2(t)?, -F(Xl(t)) + F(X2(t)))
+ ((Xl(t) - X2(t)?, al (t)'YI (t)IaK(XI (t)) - a2(th2(t)IaK(X2(t)))
::; B IIxI(t) - x2(t)1I 2 , (2.34)
where the last inequality is due to Assumption 2.1, the convexity of K,
and the fact that 'Yi(t) E n(xi(t)) for i = 1,2 and a.s. for t E [O,T].
By rewriting this inequality in integrated form and applying Gronwall's
Inequality (Lemma 2.2), one obtains Xl = X2, which establishes unique-
ness . •
Remark
Because the vector field TI( x, - F( x )) is defined only on K, we have
admitted as solutions to the ODE(F,K) only functions x: [0,00) f-? K.
Thus the proofs of existence and uniqueness are for solutions from this
class. However, the vector field may easily be extended if one wishes to
consider functions from [0,00) to Rk. For example, a natural extension
is
TI(x, -F(x)) = P(x) - x
for x ft K. One can easily verify that if x : [0,00) ~ Rk satisfies (2.21)

with the extension, then actually x(t) E K for all t E [0,00).
2.3.4 Existence of Solutions to the ODE(F, K) and Con-

vergence of Discrete Approximations
In this subsection the convergence of discrete approximations to the
PDS(F, K) is established. The results derived here will yield existence
of solutions to 0 D E( F, K) and will also be the basis in Chapter 4 for
the proof of convergence of numerical approximations to the variational
inequality (2.1).
The discrete approximations will take the following form. One is
given sequences {af, i E N U {O}} of positive scalars indexed by n EN,
where N denotes the natural numbers. One also has "approximations"
{Fin (x ), i E N U {O}} to the vector field F(x). One then recursively
defines for each n EN a sequence {xf,i E N U {O}} by
xf+1 = P(xf - af Ft(xi)), Xo E K. (2.35)
One must interpolate these approximations into continuous time in order

to compare with the solutions of the ODE. Let
i-I
tf = L:aj, kn(t) = inf{i: tf > t} - 1.
;=0
With these definitions kn(t) = i if t E [tf, tf+1)' Then the appropriate
piecewise constant continuous time interpolation is defined by
For example, the analogue of the usual "Euler" approximation to an

ODE is obtained by choosing af = lin and Ft(x) = F(x).
The following assumption is imposed.
Assumption 2.2
Assume
00
L: ai = 00 "In E N, (2.36)
i=O
lim sup ai = 0, (2.37)

n-+oo ieNu{o}
and
lim sup d(Fr(x),F(x)) =a (2.38)
n->oo iENU{O}
uniformly on compact subsets of Rk, where for a point x and set A,

d(x, A) = inf{lIx - yll,y E A}.
Note that Assumption 2.2 is automatically satisfied for the choice
Fr(x) = F(x), ai = lin. Thus, Theorem 2.8 below gives us existence
of solutions to IVP(F, K, xo).
Theorem 2.8
Assume x~ --+ Xo, Assumption 2.1, and Assumption 2.2. Then for
all T < 00
sup Ixn(t) - xo(t)1 --+ 0,
tE[O,T]
where xo(·) is the unique solution to
:i; = II(x,-F(x)), x(O) = Xo

and recall that xn(t) = xkn(t).
Proof:
Recall from the proof of Theorem 2.7 that the linear growth condition
on - F(·), Theorem 2.6, and Lemma 2.2 imply the existence of M < 00
such that iJ = -F(x), x = rT(y), x(O) = yeO) = Xo, and t E [O,T] imply
lIy(t)1I < M. Fix such an M. Assume n is large enough that IIx~1I < M.
Define
I
yi+l = - L aj FP(xj) + x~
j=O
and the analogous continuous time interpolation
Let
rM,n = inf{t : lIyn(t)1I ~ M} AT.
One can then define the version of yn(-) that is stopped as soon as it
leaves the ball of radius M:
t E [O,rM,n)
t E [rM,n, T].
Finally, define the projected version of yM,n( .):
and the discrete version xp,n = xM,n( tf). The fact that rT( 1/7)( t) de-
pends only on the values {1/7(s),s E [O,t]} implies xM,n(t) = xn(t) for all
t E [0, rM,n].
Note that the uniform boundedness of yM,n(t) in n E Nand t E [0, T]
and the Lipschitz property of rT imply the uniform boundedness of
xM,n(t) in the same variables. We define measures J.lM,n on [0, T] X Rk X
Rk by
J.lM,n([SI, S2) X B x C) = L ai IB(xp,n)Ic( -Ft(xp,n)).

i:S19i<S2
Then (2.36) and (2.37) imply
lim J.lM,n ([0 , T] X Rk X Rk) = T.

n-+oo
Furthermore, the uniform boundedness of {xp,n,n E N,i ~ kn(T)} and

Assumption 2.1 imply the existence of a compact set A C Rk X Rk such
that
lim J.lM,n([O,T] X A) = T.
n-+oo
By Prohorov's Theorem (d. Ethier and Kurtz (1986), Theorem 3.2.2),

this guarantees that given any sequence from {J.lM,n, n E N} there exists
a subsequence (which we label by n for simplicity) that converges weakly
to a limit measure J.lM with mass Tj i.e., for all bounded continuous
functions f on [0, T] X Rk X Rk one has
JfdJ.lM,n JfdJ.lM,
-t
and J.lM ([0, T] X Rk X Rk) = J.lM ([0, T] x A) = T. Since [0, T] is compact,

one can also assume rM,n - t rM E [0, T] along this subsequence. It
follows easily from the definition of J.lM,n and Assumption 2.2 that for
t E [0, rM,n]
(2.39)
where
°
satisfies
sup IIgn(t)1I --+
tE[O,TM,nj
°
as n --+ 00. It is straightforward to show that the t-marginal of p,M is
Lebesgue measure, i.e., for all ~ Sl ~ S2 ~ T,
p,M([SbS2] X Rk x Rk) = S2 - Sl.
(This is a direct consequence of the fact that
Ip,M,n([sbs2] X Rk X Rk) - (S2 - sl)1 ~ supai

i
--+ °
as n --+ 00). In particular, p,M ({t} X Rk X Rk) = for all t E [0, T].
As noted above, there exists a compact set A C Rk X Rk such that
°
p,M,n, n EN, and p,M are supported on [0, T] x A. Let f be a bounded
continuous function that equals (3 on [0, T] x A. Because p,M,n converges
weakly to p,M, one has
[ f(s,x,{3)p,M,n(ds X dx x d(3)
J[O,tj X Rio X Rio
--+ [ f(S,x,{3)p,M(dsxdx x d(3)

J[O,tjXRkxRk
for all t E [0, T] (cf. Theorem 1.5.1, Billingsley (1968)). Since the sup-
ports of p,M,n, n EN, and p,M are contained in [0, T] x A, this implies
[ (3p,M,n( ds x dx x d(3) --+ [ {3p,M (ds x dx x d(3)

J[O,tjxRkxRk J[O,tjxRk x R1c
as n --+ 00 for all t E [0, T]. Thus, by (2.39), yM,no converges uniformly
on [0, r M] to a function yM (.) that satisfies
yM (t) = Xo +[ {3p,M (ds x dx x d(3) (2.40)

J[O,tjxR 1c XR1c
for t E [0, r M]. The continuity of rT(·) implies that xM,n converges
uniformly on [0, r M] to x M = rT(yM).
It is next shown that x M = rT(yM) solves the ODE x = II(x, -F(x))

for t E [0, r M ]. Because of the equivalence shown in Theorem 2.7, it
suffices to prove iJM(t) = -F(xM(t)) a.s. for t E [O,rM]. It follows from
the fact that the first marginal of J.LM is Lebesgue measure that for all
s E [0, T] there exists a probability measure J.L~ on Rk X Rk such that
f
J[O,tjXRkXRk
{3J.LM (ds X dx X d(3) = r f
Jo JRkXRk
{3J.L~ (dx X d(3)ds
for all t E [0, T]. (The method used to construct the measures J.L~ is
essentially the same one used to show the existence of regular condi-
tional probabilities. (See page 502 of Ethier and Kurtz (1986).) One can
assume that the mapping s ~ J.L~ (A) is Borel measurable for all Borel
sets A, so that the integral on the right-hand side above is well defined.)
We next claim that
J.LM ({(s, x,(3) : x ::p x M(s)} U {(s,x,{3) : (3 ::p -F(x)}) = O. (2.41)
The fact that J.LM (((s,x,{3): x::p xM(s)}) = 0 follows easily from the
fact that xM,n -+ x M uniformly on [0, T] and the definition of J.LM,n. To
prove J.LM ({(s,x,{3): (3::p -F(x)}) = 0 we note that the continuity of
the mapping x ~ -F(x) implies the set ((s,x,{3) : d({3, -F(x» > t5}
is open for all t5 ~ O. This implies (Ethier and Kurtz (1986) Theorem
3.3.1) that
J.LM (((s,x,{3): d({3,-F(x» > t5})
~ lim inf J.LM,n ({( s, x, (3) : d({3, -F( x»
n-+oo
> t5}) .
For each 0 > 0 equation (2.38) implies
J.L M,n({(s,x,{3): d({3,-F(x)) > a}) =0

for all sufficiently large n. Thus, J.LM (((s,x,{3) : d({3, -F(x» > a}) = 0,
and upon sending 0 t 0 we obtain J.LM({(s,x,{3) :(3::p -F(x)}) = O.
This proves (2.36).
Equation (2.36) implies a.s. in s E [0, T] that J.L~ is supported on
the set {xM(s)} X {b(xM(s»}. Thus, equation (2.35) implies
iJM (s) = f
JRkxRk
{3J.L~ (dx X d(3) = 1 _
{XM(S)} X {b(xM(s))}
{3J.L~ (dx X d(3)
= _F(xM(s»
a.s. in s E [0, r M ]. We conclude that x M solves x = II(x, -F(x)), x(o) =

Xo, at least on [0, r M ]. It follows from the definition of the rM,n that
rM < T implies lIyM(r M )\\ = M. However, this contradicts our choice of
M made at the beginning of the proof, which guaranteed lIyM(t)1I < M
for all t E [0, r M ]. Hence, rM = T, and x M solves (2.21) on the entire
interval [0, T].
It has been proven that xM,n converges to the unique solution to
(2.21) along the given convergent subsequence. The standard argument
by contradiction then shows the convergence along the original sequence
n EN. This completes the proof of the theorem . •
The following theorem addresses the second part of Theorem 2.5 and
may be proved by an argument very similar to the one used to prove
Theorem 2.8.
Theorem 2.9
For Xo E K let xo(t) denote the unique solution to x = II(x,-F(x))
that satisfies xo(o) = Xo. Let {xn' n E N} c K satisfy Xn ~ Xo as
n ~ 00, and assume Assumption 2.1. Then x n(-) ~ xoO uniformly on
compact subsets of [0, 00).
Remark
One might want to consider the case where there is an external forcing
term, i.e., -F(x(t)) is replaced by -F(x(t))+h(t), where h : [0,00) ~ Rk
is a bounded measurable function. In this case the ODE takes the form
x = II(x, -F(x) + h). By making small modifications in the proofs
Theorems 2.7 and 2.8 can be extended to cover this case as well.

Dupuis and Ishii (1991) were the first to note the relationship between
the solutions to a variational inequality problem and the solutions to
an associated dynamical system. The theoretical foundations were then
laid by Dupuis and Nagurney (1993), who also provided much of the
motivation for the need for the study of such discontinuous dynamical
systems.
The projected dynamical system was so-named by Zhang and Nagur-
ney (1995). They also noted that the projected dynamical system con-
tains, as a special case, the classical dynamical system governed by ODEs
with continuous right-hand sides, when the entire space Rk is regarded as
the constraint set K. Namely, any dynamical system in a classical sense

(cf. Hirsch and Smale (1974) and Perko (1991)), defined by a continuous
vector field -F on Rk, is, in fact, a PDS(F,R k ). However, the pro-
jected dynamical system makes a nontrivial generalization that allows
one to 'study, in a unified way, many well-known competitive systems
with natural constraints, both in the interior and on the boundary of
the constraint set. Such applications cannot be fully addressed through
classical dynamical systems and will be the topic of the second part of
this book.
Section 2.1
Variational inequalities were introduced for the study of partial dif-
ferential equations by Hartman and Stampacchia (1966). The standard
reference for such infinite-dimensional problems is the book by Kinder-
lehrer and Stampacchia (1980). A reference for finite-dimensional vari-
ational inequalities, theory and applications, is the book by Nagurney
(1993a). For a variety of equilibrium analysis tools, in addition to, vari-
ational inequalities, along with applications, see also the edited volume
by Nagurney (1993b).
Section 2.2
The correspondence between the variational inequality problem and
the pertinent class of ordinary differential equations, as summarized by
Theorem 2.4, was first made by Dupuis and Ishii (1991). It was later
proved in Dupuis and Nagurney (1993).
Theorem 2.5, cited from Dupuis and Nagurney (1993), contains the
fundamental properties of projected dynamical systems, and as shown in
the same reference, can be extended to allow for discontinuous functions
F( x). For example, for each x E Rk, let the set-valued function F( x) be
n
defined as
F(x) = cov ({F(y): Ilx - yll ~ f})
f>O
where the overline indicates the closure and cov(A) denotes the convex
hull of the set A. Then F(x) is convex and upper semicontinuous, par-
ticularly, F(x) = F(x), when F is continuous at x. Assumption 2.1 then
has the interpretation under this extension that, for any u E F( x) and
any w E F(y):
lIuli ~ B(l + IIxll), "Ix E K,
((-u + w)T,x - y) ~ Bllx - y1l2, Vx,y E K.
In this case, Theorem 2.5 holds for the solutions to the generalized
version of the IVP(2.21), which becomes a differential inclusion at points
where F(x) is discontinuous. For the theory of differential inclusions, the
reader is referred to the book by Aubin and Cellina (1984). However,
such a discussion is beyond the focus of this book, and we will always
assume that F( x) is continuous.
Assumption 2.1 was first observed by Filippov (1960) to be a sufficient
condition in establishing the uniqueness of solution to a classical ODE:
x = -F(x).
Section 2.3
As noted in Dupuis and Nagurney (1993), many properties of the
solution to the Skorokhod Problem generalize to domains that are not
convex polyhedra. However, the Lipschitz property does not. Since it is
the Lipschitz property that makes much of what has been presented here
simpler, K is restricted to the case of a convex polyhedron. It is still
possible to handle more general domains via "localization" arguments,
or directly by using the results in Dupuis and Ishii (1993). Nevertheless,
numerous applications, as will be shown in Part II of this book, are
characterized by a feasible set K, which is precisely a convex polyhedron.
For the initial setup of the Skorokhod Problem, see Skorokhod (1961).
For a summary of recent contributions to the study of this problem, see
the introduction in Dupuis and Ishii (1991).
The results in this section are taken directly from Dupuis and Nagur-
ney (1993).
References
Aubin, J.P., and Cellina, A., Differential Inclusions, Springer-Verlag,
Berlin, Germany, 1984.
Billingsley, P., Convergence of Probability Measures, John Wiley
& Sons, New York, 1968.
Coddington, E. A., and Levinson, N., Theory of Ordinary Differen-
tial Equations, McGraw-Hill Book Company, New York, 1955.
England, 1897.
matical Progmmming 26 (1983) 40-47.
Dupuis, P., "Large deviations analysis of reflected diffusions and con-

strained stochastic approximation algorithms in convex sets," Stochastics
21 (1987) 63-96.
Dupuis, P., and Ishii, H., "On Lipschitz continuity of the solution map-
ping to the Skorokhod Problem, with applications," Stochastics and
Stochastic Reports 35 (1991) 31-62.
Dupuis, P., and Ishii, H., "SDEs with oblique reflection on nonsmooth
domains," Annals of Probability 21 (1993) 554-580.
Ethier, S. N., and Kurtz, T. G., Markov Processes: Characteriza-
tion and Convergence, John Wiley & Sons, New York, 1986.
Fillipov, A. N., "Differential equations with discontinuous right-hand
side," Mat. Sbornik (N. S.) 51 (1960) 99-128.
Hartman, P., Ordinary Differential Equations, John Wiley & Sons,
New York, 1964.
Hartman, P., and Stampacchia, G., "On some nonlinear elliptical differ-
ential functional equations," Acta Mathematica 115 (1966) 271-310.
Hirsch, M. W., and Smale, S., Differential Equations, Dynamical
Systems, and Linear Algebra, Academic Press, New York, 1974.
York, 1980.
Kushner, H. J., and Clark, D. S., Stochastic Approximation Meth-
ods for Constrained and Unconstrained Systems, Springer-Verlag,
New York, 1978.
Lefschetz, S., Differential Equations. Geometric Theory, Inter-
science, New York, 1957.
proach, Kluwer Academic Publishers, Boston, Massachusetts, 1993a.
Nagurney, A., editor, Advances in Equilibrium Modeling, Anal-
ysis, and Computation, Annals of Operations Research 44, J. C.
Baltzer Scientific Publishing Co., Zurich, Switzerland, 1993b.
Perko, L., Differential Equations and Dynamical Systems, Sprin-
ge-Verlag, New York, 1991.
Skorokhod, A. V., "Stochastic equations for diffusions in a bounded re-

gion," Theory of Probability and its Applications 6 (1961) 264-274.
systems," Journal of Optimization Theory and Applications 85 (1995)
97-124.
Chapter 3
Stability Analysis
Stability of a system is defined as the ability of the system to maintain

or restore its equilibrium when acted upon by forces tending to displace
it. Hence, the study and understanding of equilibrium problems is in-
complete without an investigation into the stability of the underlying
systems.
This chapter addresses the study of the stability of projected dynam-
ical systems around their stationary or equilibrium points. It thus raises
the subject of the dynamical stability of variational inequality solutions,
in contrast to parametric perturbative stability, which has been investi-
gated quite thoroughly both in the general setting of variational inequal-
ity problems by, among others, Kyparisis (1987), Dafermos (1988), and
Qiu and Magnanti (1992), as well as in applications, beginning with the
work of Dafermos and Nagurney (1984a, b).
Theoretically, since the associated ordinary differential equation (cf.
(2.20)) has a discontinuous right-hand side, due to the projection op-
erator on the boundary of the constraint set, the stability study of the
projected dynamical system lies outside the scope of standard dynamical
systems theory in a continuous vector field or more, commonly, in a C l
vector field, that is, in the class of continuously differentiable functions.
The results established in this chapter, however, will naturally generalize
the stability theory of dynamical systems that assumes that there are no
constraints in the problem. Particularly, it will be shown that, around
the equilibrium points that lie in the interior of the constraint set, the
stability of projected dynamical systems is identical to that of dynamical
systems in the same vector field.
45
46 CHAPTER 3. STABILITY ANALYSIS
Furthermore, although many well-known equilibrium problems in op-

erations research, management science, and economics can be formulated
and studied as variational inequality problems, with solutions corre-
sponding to the equilibrium states, to date, one had no way in which
to identify, which among, what may be multiple solutions, is a "true"
equilibrium. The dynamical stability study conducted here will thus
facilitate a discrimination between those variational inequality solutions
having "good" stability as equilibria and those with "bad" stability. One
may expect the former to occur in practice, whereas the latter may be
eliminated for consideration in applications.
Indeed, stability analysis has long been a central subject in the study
of many equilibrium problems, notably, in economics. This can be at-
tributed to the fact that equilibrium states are characterized as time-
invariant and thus may have a greater chance of actually being witnessed
than other states. Therefore, the possibility of the occurrence of equilib-
rium states is an important issue, which, in a sense, is reflected by their
characteristic stability.
The dynamical stability study undertaken here also includes the local
and global convergence of continuous time algorithms for the computa-
tion of equilibrium points, and thus fertilizes the convergence study of
the iterative scheme of Chapter 4. The general iterative scheme may be
viewed as "tracking" the continuous trajectory of the projected dynam-
ical system.
This chapter is organized as follows. In Section 3.1, the definitions
and notation needed to address the study of stability are presented. The
difference between the stability of classical dynamical systems and that
of projected dynamical systems is then illustrated through some exam-
ples. In Section 3.2, the definition of a regular solution to a variational
inequality problem is introduced, as well as the concept of a minimal face
flow around the equilibrium points, induced by the projected dynamical
system. At those equilibrium points that solve the variational inequality
problem regularly, it is shown that the projected dynamical system in-
herits many stability properties from its induced minimal face flow. Since
the latter is a standard dynamical system of a lower dimension, the sta-
bility of projected dynamical systems can thus be exploited through the
classical stability theory of dynamical systems. In Section 3.3, more lo-
cal and global results are established, but under various monotonicity
conditions.
3.1. BASIC CONCEPTS OF STABILITY 47
3.1 Basic Concepts of Stability

In this chapter we are interested in answering questions such as:
(I). If a competitive behavior starts near an equilibrium, will it stay
close to it forever?
(2). Given the current state of a competitive system, will it asymptoti-
cally approach an equilibrium and at what rate?
To make these questions more precise, we need to give the mathe-
matical definitions of various stability concepts for projected dynamical
systems.
Throughout this chapter, let PDS( F, K) denote a projected dynam-
ical system, where K is a convex polyhedron in Rk and F is a vector
field whose domain contains K. Recall from Chapter 2 the notations
x . t and x(t) that denote the solution path of the initial value problem,
IVP( F, K, x) (d. (2.21)) that passes through x at time t = 0, that is,
x ·0 = x(O) = x.
The following definitions address stability concepts for both projected
dynamical systems and classical dynamical systems (see also, e.g., Hirsch
and Smale (1974)) at their equilibrium points.
Definition 3.1
For any subset A of Rk, the w-limit set of A is defined by
w(A) = {y: 3x n E A, tn -+ 00, such that Xn . tn -+ y, as n -+ oo}.
We will use B(x,r), hereafter, to denote the open ball with radius r
and center x.
Definition 3.2
An equilibrium point x* is stable if for any € > 0, there exists a 6 > 0
such that for all x E B( x* ,6) and t ~ 0
x·t E B(x*,€).
The equilibrium point x* is unstable if it is not stable.

In Figures 3.1 and 3.2, respectively, stable and unstable equilibrium
points are depicted.
Feasible Set K
Figure 3.1: A stable equilibrium point
Feasible Set K
Figure 3.2: An unstable equilibrium point

Feasible Set K
B(X*,E)
Figure 3.3: An asymptotically stable equilibrium point
Definition 3.3
An equilibrium point x* is asymptotically stable if it is stable and
there exists a 6 > 0 such that for all x E B( x*, 6)
lim X· t ~ x*. (3.1)

t--+oo
In Figure 3.3 an asymptotically stable equilibrium point is depicted.

Definition 3.4
An equilibrium point x* is exponentially stable if there exists a (; > 0
and constants B > 0 and I-" > 0 such that
IIx, t - x*1I :s; Bllx - x*1I exp( -I-"t), 'It ~ 0, 'Ix E B(x*,6); (3.2)
x* is globally exponentially stable, if (3.2) holds true for all x E K.

Definition 3.5
An equilibrium point x* is a monotone attractor if there exists a (; > 0
such that for all x E B( x*, 6)
d(x,t)=lIx.t-x*1I (3.3)
is a non increasing function of t; x* is a global monotone attractor if

d(x, t) is non increasing in t for all x E K.
Feasible Set K
B(x',t}
Figure 3.4: A finite-time attractor
An equilibrium point x* is a strictly monotone attractor if there exists

a 8> 0 such that for all x E B(x*,8), d(x,t) is monotonically decreas-
ing to zero in tj x* is a strictly global monotone attractor if d( x, t) is
monotonically decreasing to zero in t for all x E K.
We now define a finite-time attractor and depict one in Figure 3.4.
Definition 3.6
An equilibrium point x* is a finite-time attractor if there is a 8 > 0
such that for any x E B(x*, 8), there exists some T(x) < 00 such that
x·t=x*, when t~T(x).
3.1.1 Examples
The following two examples show how greatly the stability of the pro-
jected dynamical system (PDS) can differ from the stability of a classical
dynamical system (DS) in the same vector field.
Example 3.1
In Figure 3.5, let the constraint set K be the square ABeD. Let
o 2 3 4
Figure 3.5: An example where the equilibrium point of a PDS is asymp-

totically stable, but not even stable for the DS
where <1>( w) = -1,0,1, when w is, respectively, negative, zero, or positive,

and 1 ~ Xl ~ 3, 1 ~ X2 ~ 3.
Let F be any continuous extension of F to the whole space R2. Then
B(2,2) is an equilibrium point of the PDS solving
x = II(x, -i'(x)),
and it is asymptotically stable.
B is also an equilibrium point of the usual DS solving
X = -F(x),
but it is not even stable there .
Example 3.2
Let the vector field F( x}, X2) = (Xl + 4X2, -xt} and the constraint
set K be the triangle AOB depicted in Figure 3.6. Then the origin 0(0,0)
is the only equilibrium point for both the PDS solving
x = II(x, -F(x))
XI - > : - F(x)
_ : lr K ( x,-F(x»
."",- - -- ...... .....

"
",
________~------~~~_ip_----~\~~------~ X2
A(-2,-l) B(2,-1)
Figure 3.6: An example where the equilibrium point of the DS is asymp-

totically stable, but not even stable for the PDS
and the usual DS solving

x= -F(x).
Although 0 is asymptotically stable for the linear system x = - F( x),
it is not stable for the PDS, as we easily observe along the edge OB in
Figure 3.6.
3.2 Local Properties Under Regularity

Having witnessed the substantial difference between the stability of a
dynamical system and the stability of a projected dynamical system, the
following question can naturally be raised: Is it possible to study the
stability of a projected dynamical system (PDS) via the more developed
theory of classical dynamical systems (DS)? The answer, as shall be
established in this section, is affirmative, at least under some condition
of regularity at the equilibrium points.
For the VI(F,K) given in (2.1), let us specify the convex polyhedron
Kby
K = {x E Rk : Bx ~ b}, (3.4)
3.2. LOCAL PROPERTIES UNDER REGULARITY 53
where B is an m by k matrix, with rows Bi- j i = 1,2,· .. ,m, and b is a

k-dimensional column vector.
A convex subset E of K is a face of K, if E is the intersection of
K and a number of hyperplanes that support K. So the intersection of
any faces of K is again a face of K. For any x E K, denote by :F( x)
the collection of all faces of K that contain x. The minimal face of K
containing x, denoted by E( x), is defined as the intersection of all the
faces of K that contain x, namely,
E(x) == n
EEF(x)
E. (3.5)
For any x E K, let lex) == {i : Bi_X = bi} and IC(x) == {i : Bi_X <
bi}, so that l( x) U IC(x) = {1, 2, ... ,m}. It is apparently true that
E(x) = {x: Bi-X = bi, i E l(x)jBj_x < bj, j E IC(x)}

= {S(x)+x}nK, (3.6)
where
Sex) = {z E Rk : Bi-Z = 0, Vi E lex)} (3.7)
is a subspace of R n , and
S(x)+x = {z+x : Z E Sex)} = {y E Rk : Bi-Y = bi , Vi E lex)} (3.8)
is an affine manifold translated from the subspace S ( x) by x, which is

itself a supporting hyperplane at x. For completeness, we assume that
Sex) = Sex) + x = Rk and E(x) = Rk n K = K, if lex) = 0.
Let x* be any solution to VI(F, K). Rk can then be expressed as the
direct sum ofthe subspace S(x*) and its orthogonal complement Sl.(x*).
For any x E Rk, if we project x-x* onto S(x*) and Sl.(x*), respectively,
and write
then Zl(X) and Z2(X) comprise the unique orthogonal decomposition of

x - x*.
We can see immediately that if x(t) solves IVP(F,K,x), then Zl(t) =
Zl(X(t» given by (3.9) is a trajectory of a classical dynamical system in
the subspace S(x*), due to the fact that PS(XO) is continuous. In fact,
it is this DS whose stability we are going to examine and exploit for
studying the stability of the PDS(F,K). The induced DS Zl(t) will be

referred to as a minimal face flow, since it is isomorphic to Zl (t) + x*,
which, with reference to (3.6), is a DS in the minimal face E(x*). In
what follows, we will spell this out rigorously mathematically.
Definition 3.7
Suppose that x* E K with dimS(x*) ~ 1 and that there is a corre-
sponding 6 = 6( x*) > 0 such that
Zl + x* E (S(x*) +' x*) n K, VZ1 E S(x*) n B(O, 6).
Define the induced governing function (about x*) g(.) = g(., x*): S(x*)n
B(0,6) ~ S(x*) as
(3.10)
Note that, in the above definition, since PS(xO) is linear, continuous,

and nonexpansive,
(i). 9 is continuous when F is.
(ii). 9 is linear when F is.
(iii). When F is Lipschitz continuous with constant L, so is 9 with
constant Lg ~ L.
(iv). When F is differentiable, 9 is differentiable and Vg(Zl)= PS(xO)
(V F(ZI + x*», so 9 is continuously differentiable when F is.
Definition 3.8
Suppose that F is continuously differentiable. Then 9 is also contin-
uously differentiable in a neighborhood about the origin of the subspace
S(x*). Define the minimal face flow about x*, MMF(F,K,x*), as the
map W: S(x*) n B(O, 6)xR ~ S(x*) where W(Zb t) = 1/Jz1 (t) solves the
initial value problem:
i 1 = -g(Zl) (3.11)
Zl(O) = Zl. (3.12)
The first result following these definitions is

Theorem 3.1
If x* is an equilibrium point of PDS(F,K), then 0 E S(x*) zs an
equilibrium point of its induced MFF(F, K, x*).
Proof:
For any Zl E S(x*) and A E R small, AZI +x* is always in K. Since
x* solves VI(F, K),
(F(x*l,(AZl+X*)-X*)) = AF(x*lzl ~O
for A small. Therefore, F(x*l Zl = 0, and, hence, F(x*) E S.l(x*).
Consequently,
-g(O) = PS(x*) ( -F(x*)) = 0,
i.e., 0 is an equilibrium point of MFF(F, K, x*), by Definition 3.8 . •
Notice that an MFF is a DS in a subspace, for whose stability study
there is a relatively mature theory available. Hence, it is appealing to
explore the stability relationships between a PDS and its MFF. This is
done, in this section, under some regularity conditions on a VI solution,
which we now introduce.
Recall from Chapter 2 that x* solves VIC F, K) if and only if
-F(x*) E C(x*), (3.13)

where C(x*) is the normal cone of K at x* and is defined by
C(x*) == {y E Rk: (yT,x' - x*) $ 0, 'tIx' E K}.
It is direct that C(x*) = {OJ, when x* E KO.

Also, it is easy to see that the normal cone C(x*) is contained in the
subspace S.l(x*), Le.,
C(x*) C S.l(x*). (3.14)
For any subset V of Rk, let L(V) denote the linear subspace spanned
by V. Then
(3.15)
and
Recall that the relative interior of C(x*), denoted by riC(x*), is the

interior of C(x*) when it is regarded as the subset of L(C(x*)) with
respect to the induced metric topology on it, and the relative boundary
of C(x*), denoted by rbC(x*), is defined accordingly (see Rockafellar
(1972)).
In view of the necessary and sufficient condition (3.13) for a solution

to VI(F,K), it is natural to bring in the following
Definition 3.9
A variational inequality solution x* of VIC F, K) is regular, or x*
solves VIC F, K) regularly, if
-F(x*) E riC(x*), when x* E aK (3.17)
and
F(x*) = 0, when x* E KO. (3.18)
We point out that the above defined regularity condition is not a

stringent restriction for variational inequality solutions. In fact, any
interior solution is regular, and any boundary solution x* is regular if
-F(x*) is in the relative interior of the convex cone C(x*). However, it is
not regular, if -F(x*) is on the relative boundary of C(x*). In particular,
when x* is a solution to VI(F, K) that lies on an k-1 dimensional face of
K, it is regular if and only if F(x*) ':I O. Hence, the regularity condition
only excludes a few solutions, many "fewer" than have been retained, as
measured in dimension.
We aim to show that, around a regular solution x* to VI(F, K), the
PDS(F, K) inherits many stability properties from its MFF(J(, F, x*),
and thus the problem can be reduced to a classical stability study of DS.
The next two lemmas are provided in order to establish the major re-
sults in this section. Particularly, Lemma 3.1 below presents an analytic
characterization of riC(x*).
Lemma 3.1
For any y E riC(x*), there exists an a> 0 such that, for all x E Rk,
(3.19)
Proof:
For any w E C( x*), one has, by definition,
(3.20)
whenever x solves
Ex ~ b. (3.21)
It follows from the nonhomogeneous Farkas' Lemma that there exists

a A E R+ such that
either
(3.22)
or
AT B = 0, and ATb < 0. (3.23)
However, (3.23) cannot hold, because for any x E J(, it gives
0= AT Bx ::; ATb < 0, (3.24)
which is a contradiction. Hence, (3.22) is true. In other words

m
C(x*) C { L AiBi, Ai ~ OJ i = 1"", m }. (3.25)
i=1
In view of (3.14) and (3.16), it follows that
C(x*) C { L AiBi-, Ai ~ 0, i E I(x*) }. (3.26)

iEI(x*)
For any subset 5 of Rk, denote its polar by 5*, defined as
5* = { y E Rk: xT y ::; 0, "'Ix E 5 }.
Then 51 C 52 implies 5i ~ 52' If C is a closed and convex cone, then

C** = C (cf. Rockafellar (1972)).
Since {L:iEI(x') AiBi-, Ai ~ O} is the closed convex cone generated
by {Bi_,i E I(x*)}, which we will denote by Con({Bi_,i E I(x*)}), its
polar is given by (cf. Rockafellar (1972))
Con*({Bi_,iEI(x*)}) = {yER n : Bi_y::;O,iEI(x*)}. (3.27)

It follows from (3.14) that
{ y E Rk: Bi-y::; 0, i E I(x*)} c C*(x*). (3.28)

On the other hand, for all x E J( and i E I(x*), one has
Therefore, it follows from (3.28) that Z2(X) E C*(x*), "'Ix E J(, and
(3.30)
Since y E riC(x*), so yT w ~ 0, Vw E C*(x*). We claim that, for all

wE C*(x*) n SJ.(x*) and w'l 0,
(3.31)
If this were not true, then there would be a w' E C*( x*) n SJ.( x*), w' 'I 0,
°
such that yT w' == 0. Now w' E SJ.(x*) and y E riC(x*) imply that there
is a sufficiently small E > such that
y + EW' E C(x*).
Hence,
(y + Ew'f w' == Ellw'112 > 0, (3.32)
which contradicts that y + EW' E C(x*) and w' E C*(x*). Therefore,
(3.31) is true.
C*(x*) n SJ.(x*) is a closed convex cone. Denote its intersection
with the unit ball B(O,l) by W. Then W is compact and contains an
element Wo, which maximizes the linear functional (y,.) on W. Namely,
yT Wo == max { yT w: II w ll == 1, wE C*(x*) n SJ.(x*) }. (3.33)
Therefore, letting a == _yT Wo > °, from (3.31), we obtain
(3.34)
for all w E C*(x*) n SJ.(x*), from which the result of the lemma follows
directly. •
Lemma 3.2
Suppose that x* is a regular solution ofVI( F, K) and xo(·) solves the
IVP(F,K,xo). Let Zi == Zi(X)j i = 1,2, be as in (3.9). For any E > 0,
and small enough, there exists a neighborhood N(x*) of x*, and some
T(xo, E), 0 ~ T(xo, E) ~ 2a- 1 1Iz2(xo)lI, such that, when Xo E N(x*)
xo(T(xo,E)) E B(O,E)nS(x*) + x*, (3.35)
where a is the constant provided by Lemma 3.1.
Proof:
Let xo(t) and x, as its abbreviation, be the solution to IVP (F, K, xo).
Let To = 2a- 1 Ilz2(xo)1I and Zi(t) = Zi(XO(t))j i = 1,2. By definition,
and since PS(x*) is linear and continuous, one has
= PS(XO)(xo(t)) = ps(xo)(ll(xo(t), -F(xo(t)))). (3.36)

By Lemma 2.1,
ll(x, -F(x)) = -F(x) + ,8(x)n*(x), (3.37)
where ,8(x) 0, and n*(x) is some inward normal at x. It is clear that

~
I(x) C I(x*), when x is in some neighborhood Nl(X*) of x*, which
implies,
S(x*) C S(x). (3.38)
Using this fact and (3.37), it follows from (3.36) that, for x(t) E N 1 (x*),
Zl(t) = PS(XO)( -F(x) + ,8(x)n*(x))
= PS(XO)PS(x)( -F(x) + ,8(x)n*(x))

= PS(xO)(Ps(x)(-F(x)) + PS(x)(,8(x)n*(x)))
= PS(xO)(Ps(x)(-F(x))) = PS(xo)(-F(x)). (3.39)
On the other hand, it follows from Lemma 3.1, and Definition 3.3
that, since x* is a regular solution,
Because F(x) is continuous, there exists a neighborhood N2(X*) of

x* such that IIF(x) - F(x*)11 < 0./2, when x E N 2(x*). Therefore,
(-F( x f, Z2( X')/II Z2(X')II)
= (- F( x*f, z2(x')/llz2( x')II)

+ ((F(x*) - F(x,))T, z2(x')/ll z2(X')II)
~ -a + IIF(x*) - F(x)11 ~ -0./2, Vx' E K. (3.41)
Choose 0 small enough so that the neighborhood
is contained in Nl(X*) n N2(X*). Therefore, when x E N3(X*), (3.39)

and (3.41) always hold true. Let M be large so that
M ~ max{IF(x)l, x E N3(x*)}, and M ~ a,

where N 3(x*) denotes the closure of N3(X*),

For any ( > 0,( < 6, define
We claim that for any w E [0, To], when Xo E N4(x*)andxo(t) ~

S(x*), 'tItE [0, w], we have
Xo(t) E N3(X*), 'tit E [0, w].
In fact, if this were not true, there must be some v, v E [0, w], such that
xo(t) E N3(X*), 'tit E [O,v), but xo(v) ~ N3(X*), and xo(t) ~ S(x*), 'tit E
[0, v). This is because xo(O) = Xo E N4(X*) C N3(X*) and xo(t) is con-
tinuous.
Notice that, for all t E [0, v)
d d
d/ IIZl(t) + z2(t)1I 2/2) = dt (lIxo(t) - x*112 /2)
= ((xo(t) - x*l , II(xo(t), -F(xo(t))))
= ((xo(t) - x*)T , -F(xo(t))) + ((xo(t) - x*l , f3(xo(t))n*(xo(t)))
:::; ((xo(t) - x*l , -F(xo(t)))
= (zl(tl,-F(xo(t))) + (z2(tl,-F(xo(t))). (3.42)
The first term in the right-hand side of (3.42) can be rewritten as
(zl(tl, -F(xo(t)))
= (Zl (tl, PS(x')( -F(xo(t))) + (Zl (tl, PS.L(x')( -F( xo( t) )))
= (zl(tl,ps(x.)(-F(xo(t)))) = (zl(tl,Zl(t)), (3.43)
where the last equality follows from (3.39).
The second expression in the right-hand side of (3.42) can be esti-
mated from (3.41), namely,
Substituting (3.43) and (3.44) into the right-hand side of (3.42) gives
= ~(llzl(t)+Z2(t)112/2) ~ (zl(tf,Zl(t)} - allz2(t)II/2. (3.45)
Since Ilz2(t)11 > 0, Vt E [0, v], we have directly from the above that
(3.46)
which means that Ilz2(t)1I is strictly decreasing.

However, it follows from (3.39) that
IIZl(V)1I ~ Ilzl(O)11 + fov IIPs(x*)( -F(xo(t)))lIdt ~ IIZl(O)11 + vM

~ Ilzl(O)11 + 2a- 1 1Iz2(0)IIM < f/2 + 2a- 1 (w/4M)M = Eo (3.47)
Combining (3.46) and (3.47), we conclude that xo( v) E N3(X*), which is
a contradiction to the definition of v. Hence, the claim is correct.
We now turn to proving the lemma. For any Xo E N4(X*) , there
must exist some u E [0, To] such that Z2( u) = 0 or, equivalently, xo( u) E
S(x*). Otherwise, it follows from the claim that xo(t) E N3(X*), when
t E [0, To]. So, (3.39) and (3.41) are valid. Notice that they are the
only two conditions needed in the derivation of (3.46), in addition to
xo(t) E S(x*), Vt E [0, To]. Therefore, applying (3.46), we have
IIz2(To)11 = Il z2(0)1I + foTO (~ IIZ2(t)lI)dt
~ IIZ2(0)11- (a/2)(2a- 1 Ilz2(0)11) = 0, (3.48)

which is a contradiction.
Let
M = min{u E [O,To]: xo(u) E S(x*)}. (3.49)
If M = 0, then we are done, because Xo = xo(O) E N4(X*) and, by
definition, Ilzl(O)1I = Ilzl(Xo)1I < f/2. If M> 0, then xo(t) ~ S(x*), Vt E
[0, M). Using again the claim for w = M, we conclude that xo(t) always
lies in N3(X*) when 0 ~ t ~ M. Therefore, by (3.39),
IIZl(M)11 ~ Ilzl(O)11 + foM IIPS(x*)(-F(xo(t)))lldt ~ f/2 + MM

~ f/2 + ToM = f/2 + 2a- 1 1Iz2(0)IIM < f/2 + 2a- 1 (w/4M)M = Eo
(3.50)
So
xo(y) E B(O, E) n S(x*), and y:S; To.
Let T( Xo, E) = y. The proof of the lemma is complete .•
The major results of this section are now ready for presentation.
First, it is pointed out by the following theorem that PDS(F, K) has
the best stability around its regular solutions to VI(F, K) when they are
extreme points of the feasible set K.
Theorem 3.2
When S(x*) = {O}, any regular solution x* to VI(F, K) is a finite-
time attractor for the PDS(F, K). Particularly, there exists a neighbor-
hood N(x*) of x*, such that, when Xo E N(x*),
:t II xo(t) - x*1I :s; -ex./2, 'v'xo(t) i:- x*, (3.51)
where ex. is the constant prescribed in Lemma 3.1.

Proof:
It follows directly from Lemma 3.2 that, when x* solves VI(F,K)
regularly, x* is a finite-time attractor. For the inequality (3.51), since
S( x*) = {O}, Zl (x) = PS(x.) = 0, so Z2( x) = x - x*. For a neighborhood
N(x*) of x* such that IIF(x) - F(x*)11 :s; ex./2, 'v'x E N(x*), applying
Lemma 3.1, one obtains
d d
dt (lIxo(t) - X*1I2/2) = dt (II Z2(t)11 2/2)
= ((xo(t) - x*l , II(xo(t), -F(xo(t»»)

:s; ((xo(t) - x*l , -F(xo(t»)
= (z2(tl, -F(xo(t»)
= (z2(tl, -F(x*») + (z2(tl,F(x*) - F(xo(t»)
:s; -ex.II Z2(t)II/2 + IIz2(t)llllF(x*) - F(xo(t»11
~ -ex.II Z2(t)II/2. (3.52)
Therefore, for Z2(t) f; 0,
The proof is complete. •

The next theorem illuminates the fact that around a regular solution
x*, some neighborhood on its minimal face is relatively invariant for the
PDS(F,K).
Theorem 3.3
°
Suppose that x* is a regular solution to VI(F, K) and dimS(x*) ~ 1.
Then there exists an € > such that x* + B(O,€) n S(x*) c K, and for
any x E x* + B(O,€) n S(x*),
n(x,-F(x» = -g(Zl). (3.53)
In other words, starting from any initial point Xo in the neighborhood

x* + B(O,€) n S(x*), the PDS(F,K) is identical to the MFF(F,K,x*)
by a translation from the origin to x*.
Proof:
Denote the relative neighborhood x* +B(O,€) n S(x*) by Nr(€), and
°
S(x*) by S. For a sufficiently small € > chosen, we have
Sex) = S(x*) = S, Yx E Nr(€), (3.54)
Nr(€) C K, (3.55)
and
(-F(X)T, Z2(X'») :5 -allz2(x')11/2, Yx E Nr(€), Yx' E K, (3.56a)

or, equivalently,
(PS.L( -F(x» , Z2(X'») :5 -allz2(x')11/2, Yx E Nr(€), Yx' E K,

(3.56b)
where (3.54) is direct from the definition, (3.55) follows from dimS ~ 1,
and (3.56) has been proved earlier (d. (3.41».
Since x = x* + Zl(X), when x E Nr(€), so for any x' E K, it follows
from Z2(X') =Ps.L(x' - x* - Zl(X» = PS.L(x' - x) and (3.56b) that
(x' - x?,Ps.L(-F(x») = (Ps.L(x' - x?,Ps.L(-F(x»)

= (Z2(X,)T,PS.L(-F(x») :5 -allz2(x')11/2 :5 0. (3.57)
This implies that PS.L(F(x»/IIPs.L(F(x»1I E n(x), and, hence,
PS.L(F(x»/IIPs.L(F(x»1I = n*(x). (3.58)

Therefore, by Lemma 2.1 and expression (3.58),
II(x, -F(x» = -F(x) + ,8(x)n*(x)
= -F(x) + max{O, (-F(x)T, -PS.L(F(x»/llPs.L(F(x»ID}

,PS.L (F(x »/IIPs.L(F(x »11
= -F(x) + PS.L(F(x» = Ps(-F(x* + ZI» = -g(ZI). (3.59)
The proof is complete. •
Finally, we summarize the main results in a general case by the fol-
lowing theorem.
Theorem 3.4
Suppose x* is a regular solution to VI(F, K). We have the follow-
ing relationships between the stability of the PDS(F, K) and its induced
MFF(F,K,x*).
(i). If 0 is a stable equilibrium point ofMFF(F,K,x*), then x* is stable
for the PDS(F,K).
(ii). If 0 is an asymptotically stable equilibrium point ofMFF(F,K,x*),
then x* is asymptotically stable for the PDS(F, K).
(iii). If 0 is a finite-time attractor of MFF(F, K, x*), then x* is also a
finite-time attractor for the PDS(F, K).
Proof:
(i). For any f > 0, we want to show the existence of a 0 > 0 such
that the solution xo(t) to IVP (A):
(IVP(A» :i: = II(x, -F(x», xo(O) = Xo

lies forever in the f-neighborhood of x*, whenever IIxo - x*1I < O.
Since 0 is a stable equilibrium point of the MFF(F,K,x*), there
exists a 01 > 0, such that, for the solution ZI(t) to IVP(B):
(IVP(B»
we have
(3.60)
when IIz~1I < 01.
Let r > 0 be arbitrarily fixed and
M = max{IIF(x)lI,x E B(x*,2r) n K}.

Choose °> 0 small so that
°< min{r, ra/(2M), m/(a + 2M)} (3.61)

and B(x*, 0) is contained in the neighborhood N(x*) specified in Lemma
3.2 for 01 > O.
For any xo(O) = Xo E B(x*,o), it follows from Lemma 3.2 that there
is a T(XO,Ol), 0 ~ T(XO,Ol) ~ 2a-11Iz2(Xo)ll, so that
xo(T(XO,Ol)) E B(O,odnS(x*) + x*, (3.62)
where Xo solves IVP(A). Let
then
(3.64)
By the uniqueness of the solution to the IVP(A) (d. Theorem 2.5),
for t ~ T(xo, 01),
(3.65)
where X1(T) solves IVP(C):
(IVP(C)) Xl = next, -F(X1)), X1(0) = xo(T(XO,Ol))'
In view of Lemma 3.3, we have
X1(T) = x* + Zl(T), (3.66)

where Zl(T) solves IVP(B) with
zr = zl(T(xo,Ol)), (3.67)
which combined with (3.60) gives
Xl(T) = x* + Zl(T) E x* + S(x*) n B(O, f), "IT ~ 0 (3.68)
or
(3.69)
It is now left to be shown that during the time interval [0, T(XO,Ol)],
xo(t) does not exit B(X*,f). First, it will be shown that
Ilxo(t) - x*1I < 2r, "It E [0, T(XO,Ol)]' (3.70)

If not, let
1 = min{t E [O,T(xo,Dl)] : IIxo(t) - x*1I ~ 2r}. (3.71)

Because of (3.60), IIxo(O) - x*1I < r, so 1> o. Hence, one obtains
IIxo(1) - x*1I ~ IIxo(O) - x*1I + fo1 IIII(xo(t), -F(xo(t)))lIdt

~ IIxo(O) - x*1I +1M ~ r + T(Xo,DI)M
~ r + 2a-1I1z2(Xo)IIM ~ r + 2a- 1 MD. (3.72)
But this produces
2r ~ r + 2a -1 M D,
a contradiction to (3.61). Hence, (3.70) is true and, therefore, for 0 ~
t ~ T(xo,D1),
IIxo(t) - x*1I ~ IIxo(O) - x*1I + fot IIII(-F(xo(u)),xo(u))lIdu

~ D+ T(xo,Dl)M ~ D+ 2a-1I1z2(Xo)IIM
~ D(l + 2a- 1 M) < f. (3.73)
The proof of result (i) is complete.
(ii). Given result (i), it now suffices to prove that for the D > 0
chosen in the proof for result (i), one has that
lim Xo· t
t ..... oo
= x* (3.74)
when IIxo - x*1I < D.

But, by the assumption that 0 is asymptotically stable for the mini-
mal face flow, it is direct from (3.65) and (3.66) that
lim Xo· t
t ..... oo
= tlim
.....oo
xo(T(xo,D1))· (t - T(xo,D1))
= x* + tlim
..... oo
Z1(t) = x*. (3.75)
(iii). Let T1 be such that
z1(T(xo,Dl))·t = 0, 'tit ~ T1. (3.76)

3.3. PROPERTIES UNDER MONO TONICITY 67
We have, following (3.65) and (3.66), that for t ~ Tl + T(xo,b't),

xo· t ::; xo(T(XO,b'l))· (t - T(xo,b't) ::; Xl(O)· (t - T(xo,b't)
::; x* + zl(T(xo,b'l»· (t - T(XO,b'l» ::; x*.

Hence, x* is a finite-time attractor . •
Theorem 3.4 states that the local stability of the PDS(F,K) depends
in a sense on the combination of the regularity at the equilibrium point
and the local stability of its MFF(F, K, x*). One of the extreme cases,
occurring when S(x*) ::; {O}, has been covered by Theorem 3.2, where
we see that the local stability of the PDS( F, K) is implied by the reg-
ularity at the equilibrium. When the dimension of S(x*) increases, the
emphasis is expected to shift from the regularity to the local stability of
the minimal face flow. Particularly, the extreme case at the other end
is when S(x*) ::; Rk, i.e., when x* is in the interior of K. It is then
clear that Zl (x) ::; x - x*, Z2( x) ::; 0 and g( zt) ::; F( x). Hence, locally,
the MFF(F, K, x*) is just a translation of the PDS(F, K) from x* to the
origin, and so they both enjoy the same stability.
3.3 Properties Under Monotonicity

The previous section aimed to explore the local stability of a projected
dynamical system by use of the stability theory of standard dynamical
systems. In contrast, this section is devoted to studying local and global
stability directly under various monotonicity conditions.
Recall the definitions of monotonicity at x* given in Definition 2.2
(monotonicity), Definition 2.3 (strict monotonicity), and Definition 2.4
(strong monotonicity) in order from weak to strong. In what follows,
we will establish their correspondence to the stability at x* in the same
order. Namely, it will be shown that monotonicity implies a mono-
tone attractor at x*, strict monotonicity implies a strictly monotone
attractor at x*, and strong monotonicity implies that x* is exponentially
stable. Furthermore, in this section, we will generalize the concept of
strong monotonicity to strong monotonicity with a certain degree. The
strongest stability result is then established that x* becomes a finite-time
attractor, when the degree of strong monotonicity at x* is less than two.
We begin with the following
Theorem 3.5
Suppose that x* solves VI(F, K). If F(x) is locally monotone at x*,
then x* is a monotone attmctor for the PDS(F, K); if F(x) is monotone,
then x* is a global monotone attmctor.
Proof:
By Lemma 2.1, for any x E K,
II(x, -F(x)) = -F(x) + ,8(x)n*(x), (3.77)
where ,8(x) ~ ° and
(n*(x?,x - y) ~ 0, 'Vy E K. (3.78)
Let N(x*) be a neighborhood of x* such that (3.74) holds for x E

N(x*). Let Xa E N(x*) and xa(t) solve the initial value problem (2.21).
Define
D(t) == IIxa(t) - x*11 2 /2. (3.79)
Then
bet) = (xa(t) - x*?, II(xa(t), -F(xa(t))))
= ((xa(t) - x*?,-F(xa(t))) + (xa(t) - x*,,8(xa(t))n(xa(t))). (3.80)
Taking y = x* in (3.78), we have in (3.80)
(xa(t) - x*?,,8(xa(t))n*(xa(t)))
= ,8(xa(t))(xa(t) - x*?,n*(xa(t))) ~ 0, 'Vt ~ 0. (3.81)

Therefore, since x* solves VI(F, K),
bet) ~ (xa(t) - x*?, -F(xa(t)))
~ ((xa(t) - x*?,-F(xa(t))) + (xa(t) - x*?,F(x*))

= -(exaCt) - x*?, F(xa(t)) - F(x*)) ~ 0, 'Vt ~ 0, (3.82)
where the last inequality follows from the local monotonicity of F.
Hence, for Xa E N(x*), Ilxa(t) - x*1I is a nonincreasing function on
[0, +00). By Definition 3.5, x* is a monotone attractor.
If F is monotone, then (3.82) holds for all Xa E K, so x* is a global
monotone attract or. •
Next we state
Theorem 3.6
Suppose that x* solves VI( F, K). If F( x) is locally strictly mono-
tone at x*, then x* is a strictly monotone attractor; if F( x) is strictly
monotone at x*, then x* is a strictly global monotone attractor.
Proof:
Since strict monotonicity implies monotonicity, (3.77)-(3.82) in the
proof of Theorem 3.5 still hold true here. Moreover, inequality (3.82)
now has a strict sign, due to local strict monotonicity of F( x) at x*, that
is,
D(t) ~ -((xo(t) - x*l,F(xo(t)) - F(x*)) < °
(3.83)
when xo(t) i:- x*.
Therefore, D(t) is monotonically decreasing but nonnegative. Let
D_ = tlim
..... oo
D(t). (3.84)
If D_ > 0, it is claimed that there exists a sequence {tn}; tn ---+- 00, as

n ---+- 00, such that
(3.85)
Suppose the claim is false. Then there is a b > °
and aT> 0, such that
D(t) < -b, 'Vt > T, (3.86)
which contradicts that D_ > 0, so the claim is true.
Since the sequence xo(t n ) is bounded, it has a convergent subsequence
{tnj}j with
(3.87)
From (3.84) one has
Jim IIxo(tnj) - x*1I2/2 = IIx - x*1I2/2 = D_ > 0, (3.88)

3 ..... 00
and, hence, x i:- x*.

But substituting {t nj } into (3.83) yields
D(tnj ) = -((XO(tnj) - x*)T,F(xo(tn)) - F(x*)) < 0. (3.89)

Because of (3.85) the left-hand side of (3.89) converges to zero as j ---+-
00. Therefore, by (3.87)
Jim -((xo(tnj ) - x*l,F(xo(tnj)) - F(x*))

3 ..... 00
= -((x - x*f, F(x) - F(x*)) = o. (3.90)

By strict monotonicity, (3.90) is a contradiction to the earlier result
that x f. x* from (3.88). The contradiction shows that D_ = o.
Therefore, for any Xo E N(x*),
IIxo(t) - x*1I2 10 as t -t 00. (3.91)
By Definition 3.5 , x* is a strictly monotone attractor.

It is clear from (3.91) that x* is a strictly global monotone attractor
when F( x) is strictly monotone . •
Under strong monotonicity, we have
Theorem 3.7
Suppose that x* solves VIC F, K). If F( x) is locally strongly monotone
at x*, then x* is exponentially stable; if F( x) is strongly monotone at
x*, then x* is globally exponentially stable.
Proof:
Since strong monotonicity implies strict monotonicity, it follows from
(3.83) that
D(t)::; -((xo(t) - x*f,F(xo(t)) - F(x*))::; -7]lIxo(t) - X*1I2. (3.92)
Letting d(xo, t) = IIxo(t) - x*lI, one has

d(xo, t) ::; -7]d(xo, t). (3.93)
If there is some to ~ 0 with d(xo, to) = 0, because d(xo,·) is monotone

nonincreasing, one has
Ilxo . t - x*1I = 0, Vt ~ to. (3.94)
Let B = exp(7]to), then

IIxo . t - x*1I ::; IIxo - x*1I ::; Bllxo - x*1I exp( -"1t). (3.95)
Combining (3.94) and (3.95), it follows that
IIxo . t - x*1I ::; Bllxo - x*1I exp( -7]t), (3.96)
so x* is exponentially stable.
Now suppose that d(xo, t) ::J 0, Vt ~ 0. Dividing (3.93) by d(xo, t)

and taking the integral, one obtains
logd(xo,t) ~ 10gd(xo,0)-."t
or
IIxo(t) - x*1I ~ IIxo - x*1I exp( -."t). (3.97)
Hence, x* is exponentially stable.
When F(x) is monotone at x*, then (3.93) has no restriction for Xo.
The same arguments above will apply and give either (3.95) or (3.97),
with no restriction for the initial value Xo. Therefore, x* is globally
exponentially stable . •
In the following definition, the concept of strong monotonicity is gen-
eralized to strong monotonicity with a certain degree.
Definition 3.10 (Strong Monotonicity with Degree a)
°
F( x) is said to be locally strongly monotone with degree a at x* if
there is a neighborhood N(x*) of x* and." > such that
(F(x) - F(x*)l,x - x*) ~ ."lIx - x*W\ Vx E N(x*). (3.98)
F(x) is strongly monotone with degree a at x* if (3.98) holds true for

all x E K. F(x) is said to be strongly monotone with degree a if (3.98)
holds for all x,x* E K.
Finally, we have the strongest result.
Theorem 3.8
Suppose that x* solves VIC F, K). If F( x) is locally strongly monotone
with degree a < 2 at x*, then x* is a finite-time attractor.
Proof:
Since strong monotonicity with any degree implies strict monotonic-
ity, it follows from (3.83) that
D(t) ~ -(xo(t) - x*l,F(xo(t» - F(x*») ~ -."lIxo(t) - x*lIa. (3.99)
Therefore, D(t) is strictly decreasing as long as it is positive, and will

stay at zero if it ever becomes zero.
Suppose, on the contrary, that D(t) is always positive, and, hence,
so is d(xo, t) = IIxo(t) - x*lI. Then (3.99) implies that
(3.100)
which, through integration from 0 to t, yields

(d(xo,t))2-a :s; (lixo - x*II))2-a - (2 - a)17t. (3.101)
However, (3.101) is in contradiction to our earlier assumption that D(t) is
always positive. Hence, there exists a T such that, D(t) > 0, when t :s;
T, and D(t) = 0, for all t > T. In other words, x* is a finite-time
attractor . •
Liapunov functions have been a very useful tool for the study of
stability of classical dynamical systems. In the following we define a
Liapunov Function for a projected dynamical system PDS(F, K).
Definition 3.11 (Liapunov Function)
Let x(t) = cI>(x, t) be the PDS(F, K) according to Definition 2.6. For
any x* E K, let V be a real continuous function defined on a neighborhood
N(x*) of x*, and differentiable everywhere on N(x*) except possibly at
x*. V is called a Liapunov Function at x* (ofPDS(F,K)), if it satisfies:
(i). V(x*) = 0 and Vex) > 0, "Ix =I x*,
(ii). V(x):S; 0, "Ix =I x*,
where
. d
Vex) = dt V(x(t))lt=o.
Remark
Let x* be a solution to VIC F, K) and F be locally monotone at
x*. Then, with notice to (3.82), Ilx - x*112/2 is a Liapunov Function
of PDS(F, K) at x*.

Stability analysis is a subject central to the qualitative theory of dynam-
ical systems. The typical stability results for classical dynamical systems
can be found in such references as Hirsch and Smale (1974) and Perko
(1991).
Section 3.1
This section contains standard definitions in stability analysis, which
are included for convenience and completeness, as well as for definite-
ness. The two examples that are presented to highlight the distinction
between the stability of classical dynamical systems and that of projected
dynamical systems are taken from Zhang and Nagurney (1995).
Sections 3.2 and 3.3

The minimal face flow was first proposed by Zhang and Nagurney
(1995), as was the regular solution to a variational inequality problem.
With the exception of Theorem 3.8 and Definition 3.11 of strong mono-
tonicity with degree a, most of the results in this chapter are taken from
that paper.
A Liapunov function was named after A.M. Liapunov, which he suc-
cessfully used to study the stability at the equilibrium points of a dynam-
ical system. For more results on Liapunov theory, the reader is referred
to LaSalle and Lefschetz (1961).
Since the focus of this book is on the connection of a projected dy-
namical system and a variational inequality problem, we have concen-
trated our stability study on the equilibrium points of a PDS( F, K),
namely, the solutions of the associated VI(F, K). Nevertheless, parallel
to the classical stability study of dynamical systems, one may carry out
the stability analysis of a projected dynamical system for other invariant
sets, such as limit cycles.
References
Dafermos, S., "Sensitivity analysis in variational inequalities," Mathe-
matics of Operations Research 13 (1988) 421-434.
Dafermos, S., and Nagurney, A., "Sensitivity analysis for the asymmetric
network equilibrium problem," Mathematical Programming 28 (1984a)
174-184.
Dafermos, S., and Nagurney, A., "Sensitivity analysis for the general
spatial economic equilibrium problem," Operations Research 32 (1984b)
1069-1086.
Kyparisis, J., "Sensitivity analysis framework for variational inequali-
ties," Mathematical Programming 38 (1987) 203-213.
La Salle, J., and Lefschetz, S., Stability by Liapunov's Direct Me-
thod with Applications, Academic Press, New York, 1961.
Perko, L., Differential Equations and Dynamical Systems, Sprin-
ger-Verlag, New York, 1991.
Qiu, Y., and Magnanti, T. L., "Sensitivity analysis for variational in-
equalities," Mathematics of Operations Research 17 (1992) 61-70.
Rockafellar, R. T., Convex Analysis, Princeton University Press,

Princeton, New Jersey, 1972.
systems," Journal of Optimization Theory and Applications 85 (1995)
97-124.
Chapter 4
Discrete Time Algorithms
The development of algorithms for the computation of projected dynam-

ical systems is a topic equal in importance to that of the exploration of
qualitative questions of existence, uniqueness, and stability.
In this chapter we present a general iterative scheme that induces a
variety of numerical procedures for the computation of stationary points
of projected dynamical systems. These numerical procedures are dis-
crete time algorithms and have counterparts to those algorithms that
are utilized for the computation of classical dynamical systems of the
first order.
The use of numerical procedures to obtain an approximation to the
solution of classical ordinary differential equations is well-established,
with a long history. The simplest method, most commonly referred to as
the Euler method (d. Euler (1913, 1914)), is sometimes also referred to
as the Euler-Cauchy method since Cauchy (1840) gave the first precise
convergence statement. Another method, which makes indirect use of
the Taylor's expansion, without the use of derivatives, is known as the
Heun (1900) method and is sometimes also called the "improved Euler
method" (d. Collatz (1960)). The classical Runge-Kutta method (d.
Runge (1895), Kutta (1901)) is another well-known method. The above
methods are known as "one-step" methods in that only the value of the
preceding iterate, rather than earlier iterates, is used at a given iteration
in the computations.
This chapter is organized as follows. In Section 4.1 we present the
general iterative scheme and some of the numerical procedures that it
induces. We also relate the general iterative scheme to a scheme de-
75
76 CHAPTER 4. DISCRETE TIME ALGORITHMS
vised by Dafermos (1983) for the computation of solutions to variational

inequality problems.
In Section 4.2 we present the convergence results and elaborate on
the conditions for convergence.
4.1 The General Iterative Scheme

In this section we present a general iterative scheme that induces a variety
of numerical procedures, usually called discrete time algorithms since
they are generated by time discretization of the projected dynamical
system.
These discrete time algorithms are designed to estimate the station-
ary points of the projected dynamical system
x = IIK(x, -F(x)), (4.1)
or, equivalently, according to Theorem 2.4, to estimate the solutions to

the variational inequality problem
(F(X*)T, x - x*) ~ 0, "Ix E K. (4.2)
Recall that the qualitative properties of the projected dynamical sys-

tem (4.1) have already been examined in both Chapters 2 and 3.
The statement of the general iterative scheme for obtaining a solution
to (4.1) and (4.2) at iteration 1', takes the form:
(4.3)
where P is the normed projection (over the feasible set K) defined in

(2.6), {aT' l' E N} is a sequence of positive scalars, and the sequence of
vector fields {FT (·),1' EN} are "approximations" to F(·).
The form (4.3) allows one to vary both the "step size" aT and the
approximation FTc-) and, hence, induces distinct algorithms. The ob-
vious motivation for schemes of this form is provided by Theorem 2.8:
when the aT's are small a suitable interpolation of the XT's yields a good
approximation to a solution of x = IIK(x, -F(x)). Moreover, under cer-
tain conditions all solutions to this ODE will tend toward the collection
of stationary points of the ODE. Thus one would expect the X T to tend
to a neighborhood of the stationary points as well. Figure 4.1 illustrates
this characteristic of discrete time algorithms.
4.1. THE GENERAL ITERATIVE SCHEME 77
..........•....
- - _ . : Discrete time algorithm
;/
...............l'> : Projected dynamical system
(/----~'-'\]
!
V
L··_\·:·_·:···_···.""
...._. --'_\"'-i-:--~~///
Figure 4.1: An illustration of a discrete time algorithm in the background
of its associated projected dynamical system
The discrete time algorithms induced by the general iterative scheme

(4.3), solve at iteration T, the minimum norm problem:
(4.4)
or, equivalently, the strictly convex quadratic programming problem:
min
xEK
~xT.
2
x - (XT - aTFT(XT)f . x. (4.5)
In the case where the feasible set K is the nonnegative orthant, that
is, when K = Ri, then the projection operation becomes particularly
simple. In this special case, an iteration of the general iterative scheme
(4.3), given by (4.4) or (4.5), takes on the closed form expression:
(XT 1)- ={ (XT - aTFT(XT»j' if (XT - arFT(XT»j 2: 0, (4.6)

+ J 0, otherwise,
for j = 1,2", . ,k. The feasible set is of this type in oligopolistic market
equilibrium problems, spatial price equilibrium problems, and certain
traffic network equilibrium problems that are studied, respectively, in
Chapters 5, 6, and 7.
Hence, in the case that the feasible set K is the nonnegative orthant,
in order to compute the iterate {XTH }, one need only to apply a simple
formula. Also, it is worth noting that the evaluation of each (XT +1)jj
j = 1, ... , k, can be done independently and simultaneously. This feature
opens up the possibility of parallel computation for the determination of
the iterates. This avenue is explored in the context of spatial price equi-
librium problems in Chapter 6, where massively parallel architectures
are utilized for the implementation of the numerical schemes.
In the case where the feasible set is no longer the nonnegative orthant,
there are, nevertheless, many efficient algorithms to solve quadratic pro-
gramming problems of the form (4.5), some of which exploit the under-
lying special structure of a problem, such as a network structure, if it
exist~. Examples of such algorithms, include "equilibration algorithms,"
and can be found in Nagurney (1993).
Dafermos (1983), in turn, proposed a general iterative scheme for the
solution of variational inequality problems. The algorithms induced by
her scheme take the following form: At iteration T, compute X T +1 by
solving the variational inequality subproblem:
(g(XT +1,XT l,X - X T +1) ~ 0, "IX E K, (4.7)
where g(x, y) : K x K ~ Rk has the properties:
(i). g(x,x) = F(x)j
(ii). for every fixed x, y E K, the kx k matrix Vxg(x, y) is symmetric
and positive definite.
Since V xg( x, y) is assumed to be symmetric and positive definite,
the line integral I g( x, y)dx defines a function f( x, y) : K X K ~ R such
that, for fixed y E K, f(',y) is strictly convex and
g(x, y) = V xf(x, y). (4.8)
Consequently (cf. Proposition 2.3), the variational inequality subprob-
lem (4.7) is equivalent to the strictly convex mathematical programming
problem:
minf(x,XT ). (4.9)
xEK
This problem, in turn, can be solved using any appropriate mathematical
programming algorithm.
The general iterative scheme of Dafermos induces such algorithms
as the projection method and the relaxation method. Indeed, in that
framework, the projection method corresponds to the choice
1
g(x, y) = F(y) + -G(x - y), p> 0, (4.10)
p
where G is a fixed symmetric positive definite matrix and the parameter

p serves as a contraction parameter. At each step T of this projection
method, the subproblem that must be solved is given by:
(4.11)
This projection method is a fixed step-size method, with the step size
equal to the parameter p.
A characteristic of discrete time algorithms is that, unlike variational
inequality methods, they track the projected dynamical system when the
step sizes aT's are small. Namely, in addition to obtaining the solutions
to the variational inequality problem (4.2), by way of approaching the
stationary points of the projected dynamical system (4.1), they depict
the behavior of the underlying dynamic model (see also Figure 4.1).
4.1.1 Examples of Induced Algorithms

We now present examples for the vector field FT(X) (cf. (4.3)) and high-
light the corresponding induced algorithm.
The Euler Method
The most obvious and simplest example is given by: FT(x) = F(x),
for all TEN and x E K. This would correspond to the basic Euler
scheme in the numerical approximation of standard ODEs. Hence, an
iterate of the Euler method for the solution of a projected dynamical
system is expressed as
(4.12)
Interestingly, this Euler scheme may be interpreted as a projection

method (cf. (4.10) and (4.11)) where the G matrix is the identity matrix,
but with a varying step size, with the parameter p being set to aT at
iteration T.
The Heun Method
Another example is given by
1
FT(x) = 2 [F(x) + F(P(x - aTF(x)))].
This can be interpreted as a Heun-type scheme. In particular, (4.3)

then takes the explicit form
An Alternative Heun Method

If the function F(·) is defined in a sufficiently large neighborhood of
the feasible set K, an alternative Heun-type scheme is given by
with (4.3) taking the form
The Runge-Kutta Method

Another example is the Runge-Kutta type method where
where
k'Tl(X) = F(x),
k'T2(X) = P(x - a; k'Tl(X)),
k'T3( x) = P( x - a; k'T2( x)),

k'T4(X) = P(x - a'Tk'T3(x)).
Combining these expressions with (4.3) yields the following explicit state-
ment of an iterate of the Runge-Kutta method:
X'T+1 = P(X'T - ~ [F(X'T) + 2P(X'T - a; F(X'T))
+2P(X'T - a; P(X'T - ~ F(X'T)))
+P(X'T - a'TP(X'T - a; P(X'T - ~F(X'T))))]). (4.15)

An Alternative Runge-Kutta Method

If the function F(·) is defined is a sufficiently large neighborhood of
the feasible set K, an alternative Runge-Kutta method is defined as
where
h'Tl(X) = F(x),
h'T2(X) = F(x - a; h'Tl(X)),
h'T3(X) = F(x - a; h'T2(X)),

h'T4(X) = F(x - a'Th'T3(x)).
Combining these expressions with (4.3) yields the following explicit state-
ment of an iterate of the Runge-Kutta method:
X'T+1 = P(X'T - ~ [F(X'T) + 2F(X'T - a; F(X'T))
a'T( X'T - 2"F

+2F(X'T - 2"F a'T()
X'T) )
+F(X'T - a'TF(X'T - a; F(X'T - ~ F(X'T ))))]). (4.16)
One can also generate additional algorithms that correspond to all of

the standard methods of approximating solutions to ODEs, in addition
to algorithms with controlled step sizes.
There may be trade-offs in the selection of one algorithm over an an-
other based on the particular application. For example, it may be that
function evaluations are simple, but that the projection is time consum-
ing. In such a case one might want to consider the second Heun-type
scheme. It may also be the case that one is trying to extract other in-
formation while searching for solutions to the variational inequality. For
example, it can be expected to be important to know if a limit cycle has
been encountered. In this case one would also want a faithful approxima-
tion to the ODE. The numerical schemes that correspond to the higher
order methods for approximating the ODE should allow large gains (and
hence rapid convergence to solutions to the variational inequality) while
maintaining a highly accurate approximation to the ODE.
4.2 Convergence
We first give the precise conditions for the convergence theorem and
then present a general discussion of the conditions. We conclude with
the statement and proof of the theorem.
Assumption 4.1
Suppose we fix an initial condition Xo E K and define the sequence
{Xn TEN} by (4.3). We assume the following conditions:
2. d(F'T(x),F(x» ~ 0 uniformly on compact subsets of K as T ~ 00.
3. Define </>y to be the unique solution to x = II(x,-F(x» that satis-

fies </>y(O) = y E K. The w-limit set of K
w(K) = UyEK nt>o Us>t {</>y(s)}

is contained in the set of stationary points of x = II( x, - F( x ».
4. The sequence {Xn TEN} is bounded.
5. The solutions to x =
II(x,-F(x» are stable in the sense that
given any compact set Kl there exists a compact set K2 such that
UyEKnKl Ut~O {</>y(t)} C K2.
Remarks
The assumptions are phrased as they are because they describe more
or less what is needed for convergence, and because there are a number
of rather different sets of conditions that imply the assumptions. Hence,
this formulation avoids giving proofs on a case by case basis.
Part 1 of Assumption 4.1 is a general divergent step-size rule for
discrete time algorithms. Among others, Fukushima (1986) and Flam
(1992a) have proposed algorithms with such divergent step sizes, respec-
tively, for variational inequality problems and for optimization problems.
Recall from Chapter 2, Section 2.3.4, that tj = L1:~ ai is, indeed, the
accumulated time for the projected dynamical system prior to step j.
The condition L~o ai = 00 then has the interpretation that one needs
to consider the asymptotical case for the convergence of discrete time al-
gorithms, as is clear from its continuous time analogy of stability analysis
of the projected dynamical system.
4.2. CONVERGENCE 83
The correspondence between the convergence of discrete time algo-

rithms that are generated by the general iterative scheme (4.3) and the
stability of the projected dynamical system will be explored by Propo-
sition 4.1 and Proposition 4.2.
Part 2 of the assumption is obviously required, and particular exam-
ples that satisfy this condition have been given above.
Part 3 is sometimes called a "gradient-like" condition. In particular,
it rules out the possibility of limit cycles. If such limit cycles are not
excluded the numerical schemes could very well "track" such a cycle,
and, hence, never converge. Of course, the identification of such cycles
could very well be of interest. For simplicity, we have ruled out such
possibilities here.
For practical purposes, conditions 4 and 5 are roughly equivalent. In
particular, it is often the case that the stability assumed in condition
5 can be used to construct a Lyapunov function (Dupuis and Williams
(1994)), which can then be applied to prove condition 4. Both these
conditions hold automatically if K is compact. In the common special
case where K is a convex cone with vertex at the origin, an elementary
sufficient condition for both the fourth and fifth conditions is
liminf inf (F(y),y)/M > 0,

M-+oo yEK:liyli=M
since in this case the function V(y) = IIYII can be used as a Lyapunov
function. As a final observation, we note that the last three conditions
all hold under standard assumptions made in the study of variational
inequalities.
Theorem 4.1
Let S denote the set of stationary point of the projected dynamical
system (4.1), equivalently, the set of solutions to the variational inequal-
ity problem (4.2). Assume Assumption 2.1 and Assumption 4.1. Suppose
{Xn TEN} is the scheme generated by (4.3). Then d(Xn S) ~ 0 as
T ~ 00, where d(X'T' S)=infxEsIIX'T - xii.
Corollary 4.1
Assume the conditions of Theorem 4.1, and also that S consists of a
finite set of points. Then lim'T-+oo X'T exists and equals a solution to the
variational inequality.
Proof:
The proof is patterned after arguments that are now standard in the
theory of stochastic algorithms (Kushner and Clark (1978), Dupuis and
Kushner (1989)). First note that conditions 3 and 5 of Assumption 4.1
imply that the ODE x = II( x, - F( x)) has at least one stationary point,
and that the set S is bounded. Define
n-l
tn = Lai, k(t) = inf{n : t n > t} - 1,
;=0
and
x(t) = Xk(t).
Let xnO denote the shifted version of x(·) given by
Note that parts 1 and 2 of Assumption 4.1 imply Theorem 4.1 can be
applied (with the af and bf(x) in Theorem 4.1 given here by an+i and
-Fn+i(x), respectively) to xn(-) whenever xn(o) converges.
Now fix € > O. Let KI be a compact set that contains {Xn TEN},
and define K2 according to part 5 of Assumption 4.1. Parts 3 and 5 of As-
sumption 4.1 together with an elementary argument by contradiction im-
ply the existence ofT < 00 such that y E KnK1 guarantees the existence
of t ~ T such that d(¢Jy(t),S) ~ €/2. Indeed, if not true then we could
find Yn --+ Y E K n KI and T.,. --+ 00 such that d(¢Jy(t),S) > €/2 for all
t E [O,Tn]. According to Lemma 2 ¢Jy,.(') --+ ¢Jy(.) uniformly on compact
subsets of [0, 00). By part 3 of Assumption 4.1 there exists T* < 00 such
that d(¢Jy(T*),S) ~ €/4, contradicting liminf.,.-+ood(¢Jyn(T*),S) ~ €/2.
We first claim that d(Xn S) ~ € for infinitely many T. If this claim
is not true then there exists N < 00 such that d(X.,., S) > € for all
T ~ N. According to part 4 of Assumption 4.1 the set {x"'(O),n ~ N} =
{X.,., T ~ N} has compact closure. Suppose that a convergent subse-
quence is extracted (and again labeled by T). Let y E K n K I denote the
limit point of x"'(O). According to Theorem 4.1 x"'O converges uniformly
to ¢Jy(.) over the interval [O,T]. Let t E [O,T] be such that d(¢Jy(t),S) ~
€/2. Then limsup.,.-+oo d(x"'(t), S) = lim sUP.,.-+oo d(Xk(t,.+t) , S) ~ €/2,
which contradicts d(X.,., S) > € for all T ~ N.
We next claim that d(Xn S) ~ € for all sufficiently large T. An
argument by contradiction that is similar to the one used above shows
4.2. CONVERGENCE 85
the existence of 8 > °and T < 00 such that
d(y,S) ~ 8:::} d(¢y(t),S) ~ f/2 for all t E [O,T] and d(¢y(T),S) ~ 8/2.
According to the previous paragraph d(Xn S) ~ 8 for infinitely many T.

We claim that the event
{d(XT(O),S) ~ 8 and either d(XT(t),S) ~ f for some t E [O,T]
(4.17)
occurs at most finitely often. When combined with the fact that, for
°
infinitely many T, d(XT' S)~8, this will show d(XT(t), S) ~ f for all
sufficiently large T. Since f > is arbitrary, the theorem will be proved.
Thus we assume the event (4.17) occurs infinitely often. Since the
set {y : d(y, S) ~ 8} is compact, we can assume xT(O) ~ y and (by
Theorem 4.1) x T(.) ~ ¢y(.) uniformly on [O,T], where d(y,S) ~ 8. Since
the definition of 8 and T imply
d(¢y(t),S) ~ f/2 for all t E [O,T] and d(¢y(T),S) ~ 8/2,
the uniform convergence contradicts
d(xT(t), S) ~ f for some t E [0, T] or d(XT(T), S) ~ 8
when T is sufficiently large . •

Theorem 4.1 indicates that Assumption 4.1 is the elementary condi-
tion under which the general iterative scheme (4.3) converges. Taking
advantage of the stability analysis established in Chapter 3, Proposition
4.1 and Proposition 4.2 below suggest some alternative conditions that
are better known in variational inequality theory as sufficient conditions
for Part 3 and Part 5 of Assumption 4.1. These conditions are later used
in Chapter 5, Chapter 6, and Chapter 7 to establish the convergence of
the Euler-type method and the Heun-type method.
Proposition 4.1
If the vector field F( x) is strictly monotone at some solution x* to
the variational inequality problem (4.2), then Part 3 of Assumption 4.1
holds true.
Proof:
According to Theorem 3.6, x* is a strictly global monotone attractor.
Therefore, for every y E K,
¢>y(t) --t x* as t --t 00.
Hence, the w-limit set of K, w(K), is just the singleton {x*}, which is a
stationary point of:i; = II( x, - F( x)) according to Theorem 2.4 . •
Proposition 4.2
If the vector field F( x) is monotone at some solution x* to the vari-
ational inequality problem (4.2), then Part 5 of Assumption 4.1 holds
true.
Proof:
According to Theorem 3.5, x* is a global monotone attractor. We
have for any compact set Kl
II¢>y(t) - x*11 ~ lIy - x*lI, Vt ~ 0, Vy E Kl (4.18)
or, equivalently, for every y E KI,
U{¢>y(t)} c B(x*,lly- x*IJ)· (4.19)

t>o
Since Kl is compact, there is some y* E Kl such that
lIy* - x*1I = yEK

m~ Ily - x*ll·
1
(4.20)
It is clear from (4.19) that
u
yEKnKl
U{¢>y(t)} C B(x*, Ily* - x*II)·
t~O
(4.21)
Hence, the compact set K2 can be taken as B(x*, Ily* - x*II) .•
4.3 Source and Notes

There are many books dealing with the numerical solution and analysis
of ODE's. These include the books by Henrici (1962), Gear (1971),
Lambert (1973), and Conte and de Boor (1980).
4.3. SOURCE AND NOTES 87
Fundamental early references on the solution of variational inequal-

ity problems, in turn, include the books by Auslender (1976), Kinder-
lehrer and Stampacchia (1980), and Glowinski, Lions, and Tremolieres
(1981). A recent book, focusing on finite-dimensional variational inequal-
ity problems is the book by Nagurney (1993) (see also, e.g., Bertsekas
and Tsitsiklis (1989)).
The book by Garcia and Zangwill (1981) contains an introduction to
equilibrium programming and the global Newton method and its many
variants (see also, e.g., Smale (1976) and Watson (1979)).
Section 4.1
The general iterative scheme for the solution of projected dynami-
cal systems was introduced by Dupuis and Nagurney (1993), who also
highlighted certain special cases. Dafermos (1983) proposed a general it-
erative scheme for the solution of variational inequality problems, which
included, as special cases, projection and relaxation methods (see also,
e.g., Dafermos (1980) and Nagurney (1993)). The latter general itera-
tive scheme required a compact set for convergence, along with strong
monotonicity of the function F.
As noted, the Euler method defined by (4.12) can be viewed as a
projection method with a varying step size. Various step-size rules have
been used, together with other assumptions on the function F, in the lit-
erature to establish the convergence of the projection method (see, e.g.,
Bakusinskii and Polyak (1974), Alber (1979), Fukushima (1986), and
Flam (1992a)). Among these, Assumption 4.1.1 is one of the weakest
conditions, usually incorporated with the assumption of strong mono-
tonicity to guarantee convergence. Other research on the study of step-
size rules for the gradient projection method (for optimization problems)
includes that of Goldstein (1964), Armijo (1966), and Bertsekas (1976).
It is also worth noting the growing literature on the use of dynamical
systems to solve linear programming problems. Along these lines we
cite the work of Bayer and Lagarias (1989), Bloch (1990), Faybusovich
(1991) and Brockett (1991). These works point out a new direction in the
use of Hamiltonian systems and double-bracket systems to solve linear
programming problems from the interior of the constraint set. More
references can be found in the recent book by Helmke and Moore (1990).
Flam (1992b) considered solving convex programming problems by
means of ODEs, whose velocity was defined by a differential inclusion
(cf. Aubin and Cellina (1984)).
Section 4.2
With the exception of Proposition 4.1 and Proposition 4.2, most of
the results herein were reported earlier in Dupuis and Nagurney (1993).
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36-46.
Part II
Applications
91
Chapter 5
Oligopolistic Market
Equilibrium
The oligopoly problem, which consists of a finite number of firms, in-

volved in the production of a homogeneous commodity in a noncoop-
erative manner, is one of the classical problems in economics, dating
to Cournot (1838), who considered the case of two firms. It is also an
example, par excellence, of a game theory problem.
This problem has been studied extensively, both at the equilibrium
solutions, using, for example, variational inequality theory, as well as in
a dynamical context, in order to attempt to understand the interactions
among firms in this type of setting. However, dynamical. models that
have been formulated, heretofore, have typically had simplifying and
unrealistic assumptions imposed on them in order to obtain theoretical
results. Here, in contrast, we no longer, for example, impose assumptions
that require the dynamical trajectories to stay away from the boundaries.
This is important, from an application standpoint, since certain firms
may choose not to produce a product or not to ship to or trade with a
particular demand market.
The chapter is organized as follows. In Section 5.1 we review the spa-
tial oligopoly model, first introduced in Dafermos and Nagurney (1987),
and the variational inequality formulation of the governing equilibrium
conditions. We also recall the classical "aspatial" oligopoly model, which
is a special case of that model. We then provide conditions for existence
and uniqueness of the equilibrium production and shipment pattern. We
subsequently present the projected dynamical system, the set of station-
93
94 CHAPTER 5. OLIGOPOLISTIC MARKET EQUILIBRIUM
ary points of which are equivalent to the set of solutions of the spatial
model. We also provide the projected dynamical systems model for the
classical oligopoly model.
Here for the sake of generality, we consider the oligopoly problems,
operating under the Nash equilibrium (d. Nash (1950, 1951)) concept of
noncooperative behavior, as game theoretic problems. In particular, we
make the association of firms being players and their commodity produc-
tion outputs and shipments as being their strategies. The firms' utility
functions, in turn, correspond to their profit functions. Consequently,
the dynamical models that we propose are also relevant to game theory
problems.
In Section 5.2 we apply the tools of Chapter 3 to study the stability
of the oligopoly models. Examples are included to highlight how the
analysis can be applied. The stability results are presented here in a
manner sufficiently general to be applicable to other Nash equilibrium
problems, since it is well-known (d. Gabay and Moulin (1980)) that
such problems can be formulated as variational inequality problems.
In Section 5.3 we address the computation of equilibria and describe
the Euler-type method. We also give conditions for convergence. We
then illustrate the numerical performance of the Euler method on several
oligopoly examples through the use of tables and figures.
5.1 Oligopoly Models

Here we describe both a spatial and a classical oligopolistic market equi-
librium problem. These models are examples of imperfect competition
and can be viewed as prototypical game theoretic problems, operating
under the Nash equilibrium concept of noncooperative behavior.
5.1.1 The Variational Inequality Formulations

In this section we first present the spatial oligopoly model and its varia-
tional inequality formulation. We then present the projected dynamical
systems model whose set of stationary points corresponds to the set of
solutions of the variational inequality problem.
Assume that there are m firms and n demand markets that are gen-
erally spatially separated. Assume that a homogeneous commodity is
produced by the m firms and is consumed at the n markets. Let qi de-
note the nonnegative commodity output produced by firm i and let dj
5.1. OLIGOPOLY MODELS 95
denote the demand for the commodity at demand market j. Let Qij
denote the nonnegative commodity shipment from supply market i to
demand market j. Group the production outputs into a column vector
q E R+, the demands into a column vector d E R+, and the commodity
shipments into a column vector Q E R+n.
The following conservation of flow equations must hold:
n
qi = LQij, Vi (5.1)
j=l
m
dj =L Qij, Vj, (5.2)

i=l
where Qij ~ 0, Vi, j. Hence, the quantity produced by a firm must be
equal to the sum of the commodity shipments from that firm to all the
demand markets and the demand at a demand market must be equal to
the sum of all the commodity shipments to that demand market.
Associate with each firm i a production cost Ii, but allow for the
general situation where the production cost of a firm i may depend upon
the entire production pattern, i.e.,
Ii = Ii(q)· (5.3)
Similarly, allow the demand price for the commodity at a demand
market to depend, in general, upon the entire consumption pattern, i.e.,
pj = pj(d). (5.4)
We then group the production costs into a row vector I E Rm and the
commodity prices into a row vector p E Rn.
Let Cij denote the unit transaction cost, which includes the trans-
portation cost, associated with trading (shipping) the commodity be-
tween firm i and demand market j. Here we permit the transaction cost
to depend, in general, upon the entire shipment pattern, i.e.,
(5.5)
We group the unit transaction costs into a row vector C E Rmn.

The profit or utility Ui of firm i is then given by the expression
n n
Ui = LPjQij - Ii - LCijQij, (5.6)
j=l j=l
96 CHAPTER 5. OLIGOPOLISTIC MARKET EQ UILIBRIUM
Firms: i = 1, 2, .•. , m
• • •
• • • n
dl d2 dn
Demand Markets: j =1, 2, ..., n

Figure 5.1: Graphical depiction of the spatial oligopoly problem
which is the difference between the firm's total revenue and its total
costs.
In view of (5.1), (5.2), (5.3), and (5.4), one may write the profit as a
function solely of the shipment pattern, i.e.,
u = u(Q), (5.7)
where u is the m-dimensional column vector: (Ul,"" Urn f.

A graphical depiction of the underlying structure of the spatial oli-
gopoly problem is given in Figure 5.l.
Now consider the usual oligopolistic market mechanism, in which the
m firms supply the commodity in a noncooperative fashion, each one
trying to maximize its own profit. We seek to determine a nonnegative
commodity distribution pattern Q* for which the m firms will be in a
state of equilibrium as defined below. In particular, Nash (1950, 1951)
generalized Cournot's concept of an equilibrium for a model of several
players, each of which acts in his/her own self-interest, in what has been
come to be called a noncooperative game. In a game theoretic framework
the commodity shipments of each firm or "player" would correspond to
the respective strategy vector.
Definition 5.1 (Cournot-Nash Equilibrium)

A commodity shipment distribution Q* E R+n is said to constitute a
Cournot-Nash equilibrium if for each firm ij i = 1, ... , m,
(5.8)
where
As established in Dafermos and Nagurney (1987) (see also Gabay and

Moulin (1980», the variational inequality formulation of the Cournot-
Nash equilibrium is given in the following theorem.
Spatial Oligopoly
Theorem 5.1 (Variational Inequality Formulation)
Assume that for each firm i the profit function Ui(Q) is concave with
respect to the variables {Q iI, ... , Q in}, and continuously differentiable.
Then Q* E R+n is a Cournot-Nash equilibrium if and only if it satisfies
the variational inequality
~ ~ aUi(Q*) . (Q ij Q*ij ) ~ 0, VQ E R+
mn, (5.9)
aQ' .
- L- L-
i=l j=l I, -
or, equivalently, (q*, Q* ,d*) E K is an equilibrium production, shipment,

and consumption pattern if and only if it satisfies the variational inequal-
ity
m
~
i=l
8.ql .(qi - qi) + i=l
at.(q*) m n
j=l j=l
n
~ ~ Cij(Q*)· (Qij - Qij) - ~Pj(d*)· (dj - dj)
V(q,Q,d) E K,
(5.10)
where K == {(q,Q,d)IQ ~ 0,and(5.1)and(5.2) hold}.
In the classical oligopoly model, depicted in Figure 5.2, there is only
a single demand market, the unit transaction costs are identically equal
to zero, and the production cost facing each firm is a function of its
Firms: i =1, 2, ... , m
2 • • • m
Demand Market
Figure 5.2: Graphical depiction of the classical oligopoly problem
production output only. In this special case, variational inequality (5.10)

collapses to the variational inequality problem:
Classical Oligopoly
Corollary 5.1 (Variational Inequality Formulation)
Determine q* E R+, such that
(5.11)
We will now put the above oligopolistic market equilibrium problems

into standard variational inequality form (d. (2.1))
In the case of the spatial oligopoly model, let x be the column vector
in Rmn defined by x == Q, and let F( x) be the vector - V u( Q) in Rmn
with components:
with the feasible set K == {xl x 2: O}, where k = mn. Then, clearly,
variational inequality (5.9) can be placed in standard form (2.1), where,
explicitly,
8Ui(Q) [8/i(q) + oo(Q) _ o(d) - ~ [8 P1 (d) - 8Ci/(Q)] QO]

8Q ;)0
•
8qt
0 ct ) p) L...J
/=1)
8d 0 8Q 0
t)
0Ii·
(5.12)
Similarly, if we let x be the column vector x =
q E Rm, F( x) E
R m the column vector with components: (- aUal(qd,
ql
. .. , - au;(qm)?,
qm
and
K = {xl x ~ O}, with k = m, then variational inequality (5.10) governing
the classical Cournot-Nash oligopoly problem can also be placed in the
standard form (2.1), where
(5.13)
We now turn to establishing existence and uniqueness results of the equi-

librium pattern by utilizing the theory of variational inequalities.
In the context of the oligopoly problem, where F( x) is the vector of
negative marginal utilities as in (5.12) for the spatial oligopoly problem,
or as in (5.13) for the classical problem, we point out that if the util-
ity functions are twice differentiable and the Jacobian of the negative
marginal utility functions (or, equivalently, the negative of the Hessian
matrix of the utility functions), that is, [- aQ~:~bJ; i, 1 = 1, ... , m;
j, k = 1, ... , n,
for the spatial oligopoly, or [- a!;~~i]; i = 1, ... , m;
j = 1, ... , n,
for the classical oligopoly model, is positive definite, then
the corresponding F( x) is strictly monotone.
In a practical oligopoly model, it is reasonable to expect that the util-
ity of any firm i, Ui(Q), would decrease whenever its output has become
sufficiently large, that is, when Ui is differentiable, a;2~) is negative for
sufficiently large Qij, because qi ~ Qij, for all j. Hence, the following
assumption is not unreasonable:
Assumption 5.1
Suppose that in a spatial oligopoly model there exists a sufficiently
large M, such that for any (i, j),
8Ui(Q) < 0
(5.14)
8Qij ,
for all commodity shipment patterns Q with Qij ~ M.

We now give an existence result.

Proposition 5.1
Any spatial oligopoly problem that satisfies Assumption 5.1 possesses
at least one equilibrium production and shipment pattern.
Proof:
In accordance with (5.9), let
F(Q)
= (Fll (Q), ... ,F1n (Q),F21 (Q), ... , F2n (Q), ... ,Fm1(Q), ... ,Fmn(Q)l,
where Fij(Q)=_8;;S~), for all i and j.
'J
Let r = VmnM. Consider the variational inequality problem VIr
restricted on the closed ball Br with radius r centered at o. That is,
determine Q; E Br n R+n such that
where F(·) is restricted to Br .

Since Br n R+n is now compact and F(·) is continuous, then from the
existence result in Hartman and Stampacchia (1966), VIr admits at least
one solution Q;. If for some (i,j), (Q;)ij ~ M, then by Assumption 5.1,
Fij(Q;) > o. However, this is impossible, because V E Br n R+n defined
as
where i = 1, ... , mj k = 1, ... , n, will violate (5.15) by giving
(F{Q;l, V - Q;) = -~Fij{Q;){Q;)ij < o.

Therefore, (Q;)ij < M, for all i = 1, ... ,mj j = 1, ... , n, that is, IIQ;II <
VmnM=r.
Applying again the results of Hartman and Stampacchia (1966), gives
us the existence of the equilibrium pattern for the original oligopoly
problem in (5.9) . •
The next proposition demonstrates that the unique ness of the Cour-
not-Nash equilibrium is ensured by the strict monotonicity assumption
on the negative marginal utilities.
Proposition 5.2
Suppose that F is strictly monotone at any equilibrium point of the
general variational inequality problem defined in (5.9). Then it has at
most one equilibrium point.
Proof:
Suppose on the contrary, that there exist two equilibrium points xi
and x2' Hence, substitution of x2 into the variational inequality for xi
yields
(5.16)
Similarly, substitution of xi into the variational inequality for x2 yields
(F(x;l,xi - x;) ~ O. (5.17)
Summing then (5.16) and (5.17), we obtain
((F(xi) - F(x;)l,xi - x;) ~ o.

But this is in contradiction to having F be strictly monotone at the
equilibrium point x2'
5.1.2 The Projected Dynamical System Model

We now state the ordinary differential equation (ODE) for the dynamical
model of the spatial oligopoly problem described above:
Q = II(Q, Vu(Q)), Q(O) = Qo E K, (5.18)
where Vu(Q) denotes the vector of marginal utilities. Note that this
ODE captures the ODE for the classical oligopoly problem as a special
case when the vector of production outputs q is substituted for the vector
of commodity shipments Q in (5.18), with the utility function u and
the feasible set K defined accordingly. In addition, (5.18) may also be
interpreted as a dynamical model for a noncooperative game, operating
under Nash equilibrium.
We briefly interpret the ODE (5.18) in the context of both oligopoly
models. First, note that ODE (5.18) ensures that the production ship-
ments (and outputs) are always nonnegative. Indeed, if one were to
consider, instead, the ordinary differential equation: x = - F( x), or,
equivalently, Q= Vu(Q), such an ODE would not ensure that x(t) ~ 0,
for all t 2: 0, or that Q(t) 2: 0, for all t 2: 0, unless additional restrictive

assumptions were to be imposed. Such assumptions that the solutions
to the oligopoly problems lie in the interior of the feasible set have been
imposed by other authors (cf. Okuguchi (1976) and Okuguchi and Szi-
darovszky (1990)). ODE (5.18), however, retains the interpretation that
if x at time t lies in the interior of K, then the rate at which x changes
is greatest when the vector field -F(x) is greatest. Moreover, when the
vector field pushes x to the boundary of the feasible set K, then the
projection II ensures that x stays within K.
Recall now the definition of F(x) for the oligopoly models, in which
case the dynamical system (5.18) states that the rate of change of the
production shipments (and, hence, outputs) is greatest when the firms'
marginal utilities are greatest. If the marginal utilities are positive, then
the firms will increase their shipments; if they are negative, then they
will decrease their shipments. This type of behavior is rational from an
economic standpoint. Therefore, ODE (5.18) is a possible continuous
adjustment or tatonnement process for the oligopoly problems.
5.2 Stability Analysis

Consider now the competitive system consisting of the oligopolists, who,
in order to maximize their utilities, adjust their production (and ship-
ment) patterns by instantly responding to the market prices, according
to (5.18). The following questions naturally arise and are of interest.
Does the utility gradient process defined by (5.18), so-called following
Arrow and Hurwicz (1977), approach a Cournot-Nash equilibrium, and
how does it approach an equilibrium in term of the convergence rate?
Also, for a given Cournot-Nash equilibrium, do all the disequilibrium
shipment patterns that are close to this equilibrium always stay near
by? Motivated by these questions, we present in this section the stability
analysis of Cournot-Nash equilibrium, under the above utility gradient
process.
The stability of Cournot-Nash equilibrium has been well-studied in
the history of oligopoly theory. Among others, Arrow and Hurwicz
(1977) investigated the asymptotical stability of Cournot-Nash equilib-
rium. In that paper, in place of the projection operator, II, a discon-
tinuous matrix function, 'Y, was used to multiply the utility gradient on
the right-hand side of the ODE, to ensure that the tatonnement pro-
5.2. STABILITY ANALYSIS 103
cess would evolve within the nonnegative orthant. Okuguchi and Szi-
darovszky (1990) also studied the asymptotical stability of this utility
gradient process at the Cournot-Nash equilibrium, under the assump-
tions of linear price functions and quadratic cost functions. For a dis-
cussion of such issues, see Sources and Notes following this chapter.
5.2.1 Stability Under Monotonicity

By identifying the utility gradient process (5.18) as a projected dynam-
ical system, the general stability results established in Chapter 3 can be
applied directly in order to interpret conditions on the marginal utilities
V'u(Q) to yield stability results for the Cournot-Nash equilibrium. We
first summarize in the following theorem the stability properties of the
utility gradient process, under various monotonicity conditions on the
marginal utilities.
Theorem 5.2 (Under Local Monotonicity)
Let Q* be a Cournot-Nash equilibrium by Definition 5.1. We have the
following stability results under various local monotonicity conditions:
(i). If -V'u(Q) is monotone (locally monotone) at Q*, then Q* is a
global monotone attractor (monotone attractor) for the utility gradient
process.
(ii). If -V'u(Q) is strictly monotone (locally strictly monotone) at Q*,
then Q* is a strictly global monotone attractor (strictly monotone attrac-
tor) for the utility gradient process.
(iii). It - V' u( Q) is strongly monotone (locally strongly monotone) at
Q*, then Q* is globally exponentially stable (exponentially stable) for the
utility gradient process.
Proof:
(i)., (ii)., and (iii). are direct corollaries of Theorems 3.5, 3.6, and
3.7, respectively. •
If the conditions imposed in Theorem 5.2 are. strengthened to hold
globally, then the stability results stated in Theorem 5.2 (i)., (ii)., and
(iii). are generally valid for any Cournot-Nash equilibrium, as summa-
rized in the following theorem.
Theorem 5.3 (Under Global Monotonicity)
(i). If - V'u(Q) is monotone, then every Coumot-Nash equilibrium, pro-
vided its existence, is a global monotone attractor for the utility gradient
process.
(ii). If -Vu(Q) is strictly monotone, then there exists at most one

Coumot-Nash equilibrium. Furthermore, provided existence, the unique
Coumot-Nash equilibrium is a strictly global monotone attractor for the
utility gradient process.
(iii). If -Vu(Q) is strongly monotone, then there exists a unique Cour-

not-Nash equilibrium, which is globally exponentially stable for the utility
gradient process.
Proof:
The stability assertions in Theorem 5.3 (i)., (ii)., and (iii). follow
directly from Theorem 5.2 (i)., (ii)., and (iii)., respectively. The unique-
ness assertion in (ii). and the existence and uniqueness assertion in (iii).
follow from the basic properties of the variational inequality problem
stated in Theorem 2.2 and Theorem 2.3, by virtue of the variational in-
equality formulation of Cournot-Nash equilibrium given in Theorem 5.1.
• We now proceed to explore the conditions on the production costs f,
the unit transaction costs c, and the demand prices p, in the context of
oligopoly problem, in order that the various monotonicity conditions of
the marginal utilities are satisfied.
For any two shipment patterns Ql and Q2, with their corresponding
production patterns ql and q2 satisfying (5.1), and their corresponding
demand patterns d1 and d2 satisfying (5.2), we have
= (I) + (II) + (III). (5.19)

The right-hand side of (5.19) is the summation of three terms: (I),

(II) and (III), with respect to the revenues, the production costs, and
the transaction costs, respectively.
The first item can be written more explicitly as
m n n
= - L:I)9ij(Q1) - 9ij(Q2)][QL - Q~j] - L:[Pj(d1) - pj(d2)][d} - d~]
i=l j=l j=l
= _[g(Q1) _ g(Q2)]T. [Q1 _ Q2] _ [P(d1) _ p(d2)]. [d1 _ d2],
where g(Q) = (gij(Q), i = 1, ... , mjj = 1, ... , n) is a mapping from R+n
to Rmn defined by
(5.20)
Similarly, if we define h(Q) = (hij(Q),i= 1, .. ·,mjj= 1, .. ·,n):

R mn ~ Rmn as
+
h .. _ ~ 8Cill(Q) . Q. (5.21)
13 - L.J 8Q.. 111,
11=1 13
then the third term on the right-hand side of (5.19) can be expressed as
m n
= L:L:[hi;(Q1) - hij(Q2)][Q}j - Q~j]
i=lj=l
m n
+L: L:[Ci;(Q1) - Cij( Q2)][Q}j - Q~j]
i=l j=l
= [h(Q1) _ h(Q2)]. [Q1 _ Q2] + [C(Q1) _ C(Q2)]. [Q1 _ Q2]. (5.22)
In the spatial oligopoly model, the production costs are, in general,
functions of the whole production pattern q = (q1,"" qm). For a par-
ticular firm i, denote
(5.23)
The following assumption specifies a certain class of production cost

functions, which includes, as a special case, separable production cost
functions.
Assumption 5.2
Suppose that for each firm i, the production cost fi is additive, that
is,
(5.24)
where !l ( qi) is that part of the production cost that depends solely on
its own output level qi, which may include the production operation and
the facility maintenance, etc., and fl ( iii) is that part of the production
cost that is a function of all the other firms' output levels iii and reflects
the impact of the other firms' production pattern on firm i's cost. This
interdependent part of the production cost may describe the competition
for the resources, consumption of the homogeneous raw materials, etc ..
Remark
In the classical oligopoly model, the impact on the production cost
from the other firms' production pattern is ignored, i.e., R(iii) = 0; 'Vi =
1"", m. Therefore, we have fi(q) = !l(qi); i = 1"", m.
We also note that, under Assumption 5.2,
8fi(q) _ 8fi(q) - f~'( .)

8Q - 8 - , q" 'Vi, 'Vj.
ij qi
Therefore, the second item on the right-hand side of (5.19) can be sim-
plified to
m
(II) = L:[ft(ql) - fF(q~)][ql- ql], (5.25)
i=l
which is nonnegative if !l is convex for each i.

As corollaries of Theorem 5.2 and Theorem 5.2, and under Assump-
tion 5.2, the following stability results are presented.
Proposition 5.3
Suppose that Assumption 5.2 holds and for each firm i, !l is convex.
If -g, -p, h, and c are monotone, then any Cournot-Nash equilibrium
Q* is a global monotone attractor.
Proof:
Under the conditions of Proposition 5.3, we see immediately that,
for any two shipment patterns Q1 and Q2, (I) at the right-hand side of
(5.19) is nonnegative, since -g and -p are monotone. (II) is nonnegative
because of the convexity of all Jl j i = 1,· .. ,m. Also, (III) is nonnegative
due to the monotonicity of hand c. Therefore, in this case - Vu( Q)
is monotone, and, hence, every Cournot-Nash equilibrium is a global
monotone attractor by Theorem 5.3 (i) . •
Proposition 5.4
Under the condition of Proposition 5.3, plus that anyone of -g, h,
or c is strictly monotone, there exists at most one Cournot-Nash equilib-
rium, which, provided existence, is a strictly global monotone attractor.
Proof:
The conclusion follows directly from Theorem 5.3 (ii). because the
right-hand side of (5.19) is now positive, under the condition . •
Proposition 5.5
Under the condition of Proposition 5.2 plus that anyone of -g, h, or
c is strongly monotone, there exists a unique Cournot-Nash equilibrium,
which is globally exponentially stable. Furthermore, for any initial ship-
ment pattern QO, we have the following estimate of convergence for the
utility gradient process,
(5.26)
where 'f/ > 0 is the constant associated with the strong monotonicity of
anyone of -g, h, or c, whichever is strongly monotone.
Proof:
The proposition follows directly from Theorem 5.3 (iii). with notice
that the right-hand side of (5.19) will be bounded below by 'f/IIQ _ Q*112
for some 11 > 0, which is the constant associated with the strong mono-
tonicity of -g, h, or c. •
Next, we present another two stability results as corollaries of Theo-
rem 5.3, assuming that the demand price functions and the unit transac-
tion cost functions are linear (but not necessarily separable) and that the
production cost functions are quadratic (not required to be separable).
Suppose that for each firm ij i = 1,· .. , m, the production cost Ii is
quadratic and is given by
(5.27)
where A( i) is an m X m symmetric matrix, a( i) is an m-dimensional col-

umn vector, and a( i) is a scalar. We denote by A( i)u,v the entry at row
u and column v of A(i), and by a(i)u the u-th element of a(i). We also
denote by A the m X m square matrix that has the same i-th row as does
A( i), namely,
Ai,j = A(i)i,j, Vi, Vj. (5.28)
Suppose that the transaction costs are linear and are given by, in
vector form,
c(Q)=TQ+" (5.29)
where T is an mn X mn matrix and, is an mn-dimensional column
vector. For two firm-market pairs (i,j) and (u,v), the entry at row
indexed (i,j) and column indexed (u, v) of matrix T will be denoted by
T(i,j)(u,v) , and the (i,j)-th element of the vector, will be denoted by
,(i,j). Therefore, the unit transaction cost on the link connecting firm
i and market j is given by
m n
Cij(Q) = L LT(i,j)(u,v)Quv + ,(i,j). (5.30)
u=lv=l
Suppose that the demand price functions are also linear and that for
each demand market j; j = 1,···, n, the demand price Pj is given by
n
pj(d) = L Bj,vdv + (3j; j = 1,···, n. (5.31)
v=l
(5.31) can be written in vector form as
p(d) = Bd + {3, (5.32)

where B is an n X n matrix, with Bj,v denoting its entry at row j and
column v, and {3 is an n-dimensional vector, with {3j denoting its j-th
element.
Under the above assumptions, we have
Proposition 5.6
Suppose that the production costs Ii; i = 1,···, m, unit transaction
costs Cij; i = 1,···, m; j =
1,···, n, and the demand prices Pj; j =
1,···, n, are given, respectively, by (5.27), (5.30), and (5.31). If A, -B,
and T are all positive semidefinite, then any Cournot-Nash equilibrium
is a global monotone attract or for the utility gradient process.
Proof:
By virtue of Theorem 5.3, it suffices to show that - Vu( Q) is mono-
tone under the condition of the proposition. In fact, for any two shipment
patterns Ql and Q2, the first item at the right-hand side of (5.19) is now
given by
m n
- L L [pj(d 1 ) - pj(d2)] [Qtj - Q~j]
i=l v=l
m
L(Qt - Q~f( -B)(Qt - Q~) + (d1 - d2f( -B)(d1 - d2), (5.33)

i=l
where Qi = (Qil,"', Qin) E R'+

is the shipment pattern of firm i.
The right-hand side of (5.33) is nonnegative because -B is positive
semidefinite. Also, we have
m n m
= LL[L 2A(i)iu(q! - q~)][Qtj - Q~j]
i=l j=l u=l
m m
= L E 2A(i)iu(q! - q;)(qt - q~)

i=l u=l
(5.34)
where the nonegativity follows from the semidefiniteness of A.
The third item at the right-hand side of (5.19) can now be written
as
m n n
(III) = L[L LT(iv)(ij)( Qtv - Q~v)( Qtj - Q~j)]
i=l j=l v=l
m n
+L L[Cij(Ql) - Cij(Q2)][Qtj - Q~j]
i=l v=l
m
L(Qt - Q~fT(i)(Qt - Q~) + (Ql - Q2fT(Ql - Q2), (5.35)
i=l
where T( i)j i = 1,···, m, is an n X n diagonal block of the matrix T,

which consists of the entries T(iv)(ij)j v = 1,···, nj j = 1,···, n. Since
T( i) is positive semidefinite, provided that T is, the right-hand side of
(5.35) is nonnegative.
We have, therefore, shown that under the condition of the proposition
Hence, the conclusion follows directly from Theorem 5.3 (i) . •

Proposition 5.7
Suppose that the conditions of Proposition 5.6 hold, and, in addition,
either -B or T is positive definite. Then there exists a unique Cournot-
Nash equilibrium which is globally exponentially stable under the utility
gradient process. Furthermore, for any initial shipment pattern QO, we
have the following exponential rate of convergence
where TJ is the minimal eigenvalue of -(B + B T )/2 or (T + TT)/2,

whichever is positive definite.
Proof:
According to Theorem 5.3 (iii)., we only need to show that -Vu(Q)
is strongly monotone. It follows from (5.33), (5.34), and (5.35) that
m
L(Q} - Q~f( -B)(Q} - Qn + (d1 - d2f( -B)(d1 - d2)
i=l
m
+ L(Q} - Q~lT(i)(Q} - Q~) + (Ql - Q2fT(Ql _ Q2)
i=l
m
> L(Q} - Q~f( -B)(Q} - Qn + (Ql - Q2fT(Ql - Q2). (5.36)
i=l
If - B is positive definite, then

where "lB is the minimal eigenvalue of -(B + B T )/2. Hence, the right-
hand side of (5.36) is greater than
m
"lB L: IIQ~ - Q~1I2 = "lBIIQl _ Q2112.
i=l
Otherwise, if T is positive definite, then the right-hand side of (5.36) is

greater than or equal to
where "IT is the minimal eigenvalue of the symmetric matrix (T +TT) /2.
It is clear that in either case - V'u is strongly monotone and we have the
desired estimate of the convergence rate. •
5.2.1.1 An Example
For illustrative purposes, we use the established results to examine the
stability at Cournot-Nash equilibrium of the following example, taken
from Qiu (1990). This example will be revisited in Section 5.3 for the
computation of the Cournot-Nash equilibrium.
Example 5.1
Consider a spatial oligopoly problem consisting of two firms and two
markets. The production costs are quadratic and are given by:
The unit transaction costs are given by:
and the demand prices are given by:
According to our conventions (5.27) and (5.28), we have, for firm 1:
A(I) = (~ ~), a(l) = (I,D?, a(l) = 7,

for firm 2:
A(2) = (~ ~), a(2) (o,of, a(2) 13,
and
By (5.29) the transaction cost matrix is
(2,5,4, If.
Finally, by convention (5.32), we have that for demand prices:
B = ( -3° 0)
-1 and,B = T
(10,9) .
Since A, T, and - B are all positive semidefinite, according to Propo-

sition 5.6, any Cournot-Nash equilibrium is a global monotone attractor.
Furthermore, one notices that - B is positive definite with the least eigen-
value 1 and, hence, by Proposition 5.7, there exists a unique Cournot-
Nash equilibrium, which is Q* = (1,0,0, 2fl, and it is globally exponen-
tially stable. In addition, the utility gradient process has the following
convergence rate:
5.2.2 Stability Under Regularity

We now introduce the concept of a regular Cournot-Nash equilibrium,
and provide a distinct approach for the stability analysis of the utility
gradient process at a regular Cournot-N ash equilibrium, without using
the monotonicity assumptions.
lThe computation of this equilibrium shipment pattern is illustrated later in Ex-

ample 5.4.
Equivalent to the variational inequality formulation presented in The-

orem 5.1 is the complementarity problem formulation of the Cournot-
Nash equilibrium stated in the following theorem, which is an immediate
corollary of Proposition 2.2.
Theorem 5.4
Assume that for each firm i the utility function Ui(Q) is concave with
respect to Qi = (Qil,···,Qin) and continuously differentiable. Then
Q* E R+n is a Cournot-Nash equilibrium if and only if it satisfies the
following complementarity conditions
if Q13'!'. = 0
'Vi = 1"" , m; 'Vj = 1"", n. (5.37)
if Qij :2: 0,
This necessary and sufficient condition leads to the following defini-

tion of a regular Cournot-Nash equilibrium.
Definition 5.2 (Regular Cournot-Nash Equilibrium)
A Cournot-Nash equilibrium Q* is called regular if 8~i~~·) < 0,
whenever Qij = O.
One immediately notices that any Cournot-Nash equilibrium that lies
in the interior of the feasible set is regular by the above definition. One
sees that at a regular Cournot-Nash equilibrium, Q*, there is always a
positive commodity shipment between any firm-market pair (i, j), except
when the associated marginal utility 8~~~.) is negative. Economically,
such a situation might be created by risk-taking firms who do not stop
producing and shipping the commodity until they are incurring a loss.
We will next explore the stability at a regular Cournot-Nash equi-
librium, using the approach established in Chapter 3. To this end, the
following notations are introduced.
For any Q*, let
U(Q*) {(i,j) : Qij > O}, (5.38)

V(Q*) {(i,j) : Qij = O}, (5.39)
or, respectively, by U and V, when no confusion is to be caused. Denote
by u and v, respectively, the cardinality of U and V. Therefore, it is
always true that
U(Q*)UV(Q*) = {(i,j):i=l, .. ·,m;j=l, .. ·,n},

U(Q*) n V(Q*) = 0.
Correspondingly, any vector W E Rmn can be decomposed into
(S.40)
and
(S.41)
Let I be a homomorphic identity I : R U I--? R mn such that, for any vector
Y E RU, I(Y) E Rmn is a vector whose V components are zeroes and U
components form vector Y, namely,
IU(y) = Y, IV(Y) = O. (S.42)
Then, we have, by definition,
(S.43)
Introduced below is a classical dynamical system which evolves in
the face {Q E Rmn : QV = O} of the constraint set R+n, where the
Cournot-N ash equilibrium situates.
Definition 5.3
The minimal face flow at a Cournot-Nash equilibrium Q* is the dy-
namical system that solves
! QU (t) = H(Qu (t)), (S.44)
where
(S.4S)
Since the right-hand side of (S.44) is cOIl.tinuously differentiable, the

minimal face flow is a classical dynamical s#tem. One also observes from
(S.44) and (S.4S) that the minimal face flow, with its QV variables fixed
at zero level, evolves in the subspace {Qij = O,(i,j) E V(Q*)}, and the
vector field acting on its QU variables is composed of the U-components
of Vu(Q).
The relationship between the utility gradient process and its minimal
face flow is revealed through the following two theorems.
Theorem 5.5
For any Cournot-Nash equilibrium, Q*, its minimal face flow has a
stationary point at Q*u.
Proof:
It follows from the equilibrium condition (5.37) that 8~·4~·) -0,
when (i,j) E U( Q*), i.e., [Vu( Q*)]U = O. The proof is complete with
notice to (5.43) . •
As an application of Theorem 3.4, we have
Theorem 5.6
Let Q* be a regular Cournot-Nash equilibrium. Then Q* is stable for
the utility gradient process (5.18), if Q*u is stable for the minimal face
flow solving (5.44); Q* is asymptotically stable for the utility gradient
process, if Q*u is asymptotically stable for the minimal face flow.
Proof:
The theorem is a direct corollary of Theorem 3.4 . •
The above theorem indicates that, at any regular Cournot-Nash equi-
librium, the minimal face flow provides a local approximation to the
utility gradient process. The relationship is further exploited in the next
theorem which suggests a direct way to justify the asymptotical stability
at a regular Cournot-N ash equilibrium.
Theorem 5.7
Let Q* be a regular Cournot-Nash equilibrium. If all the eigenvalues
of the Jacobian matrix of H at Q*u
(5.46)
have negative real parts, then the utility gradient process is asymptotically
stable at Q*.
Proof:
By virtue of Theorem 5.6, we only need to show that the minimal
face flow is asymptotically stable at Q*u. However, given the condition
that all the eigenvalues of the Jacobian matrix V H(Q*u) have negative
real parts, the result is classical (see, e.g. Hirsh and Smale (1974)) . •
At a regular Cournot-N ash equilibrium Q*, if we call Qij with (i,j) E
U(Q*), the equilibrium-active shipment pairs, and Qij with (i,j) E
V(Q*), the equilibrium-inactive shipment pairs, then Theorem 5.6 states
that the minimal face flow approximately describes the local evolution
of the equilibrium-active shipment pairs of the utility gradient process
around Q*. Theorem 5.7 further points out that the asymptotical sta-
bility of the utility gradient process at Q* can be determined by a sub-
Jacobian matrix of the utility gradient function V'u(Q) corresponding to
the equilibrium-active shipment pairs. In other words, one only needs
to extract a submatrix of size u from the entire Jacobian of the utility
gradient at Q* , and to calculate the eigenvalues of this submatrix. There-
fore, when the equilibrium shipment pattern contains many equilibrium-
inactive shipment pairs, which is usually the case when there are a large
number of firms and markets involved in the spatial oligopoly problem,
we will considerably reduce the size u X u of the submatrix from the size
mn X mn of the entire Jacobian matrix, and, hence, the computation
of the eigenvalues will be relatively easier. This has been stated as the
major concern in Okuguchi and Szidarovszky (1990).
5.2.2.1 An Example
The following example highlights the simplicity of applying Theorem 5.7
in order to check the asymptotical stability at a regular Cournot-Nash
equilibrium.
Example 5.2
Consider a spatial oligoply problem that consists of three firms and
two demand markets. The production cost functions for the firms are
quadratic and nonseparable and are given by:
1
= 2q1 + qlq2 + ql + 1,
2
h(q)
h(q) = 2q~ + 8q2q3 + 2q2 + 2,

h(q) = q; + 3.
The demand prices are given by:
Pl(d) = -d1 + 14, P2(d) -d2 + 12,
and the unit transaction costs are given by:
6, C12(Q) 8,
7, C22( Q) 5,
According to our earlier conventions, we have
1 1
A(1) =
(
!°
2 2
°°
and, therefore,
_
A= ( 1° 1 0)
2 2
2 4 ,
°° 1
which is not positive semidefinite. Consequently, the approach following
Proposition 5.6 is no longer applicable here.
However, it is easy to verify that
is a regular Cournot-Nash equilibrium, from the observation that
Vu(Q*)
_ (8u1(Q*) 8Ul(Q*) 8U2(Q*) 8U2(Q*) 8U3(Q*) 8U3(Q*))T

- 8Qll' 8Q12 ' 8Q21 ' 8Q22 ' 8Q31 ' 8Q32
1 3 T
= (0, -'2' -1,0, -1, -'2) .
The equilibrium-active shipment pairs are (1,1) and (2,2). Hence,

the 2 x 2 sub-Jacobian matrix (d. (5.46)) corresponding to the equili-
briu-active shipment pairs can be easily calculated as
whose eigenvalues are -3 and -5. Therefore, according to Theorem 5.7

the regular Cournot-N ash equilibrium Q* = (2,0,0,1,0, of is asymp-
totically stable. Notice that we do not need to calculate in this example
the entire Jacobian matrix of the utility gradient function, which is a
6 X 6 matrix.
5.3 A Discrete Time Algorithm

Although the dynamical system (5.18) provides a continuous adjustment
process, a discrete time process is needed for actual computational pur-
poses. Here we discuss one of the algorithms induced by the general
iterative scheme of Chapter 4, in particular, the Euler-type method,
whose realization in the framework of the oligopoly problems takes on a
very simple form for computational purposes.
We now present the Euler-type method (cf. (4.4)), which is the
simplest algorithm induced by the iterative scheme. In particular, in
the context of the classical oligopoly model, in view of the fact that the
feasible set K is the nonnegative orthant, the projection operation takes
on a very simple form for computational purposes, and one need only, at
each iteration T, to compute the new production outputs for each firm
i, in closed form, using the following simple formula:
8U·(qT)
qI:+l = max{O ' T
a 8I qi i + qT}
I'
\.I.
v~. (5.47)
Similarly, in applying the Euler method to the spatial oligopoly

model, one need only, at each iteration T, to compute for each firm
i, the commodity shipments to each demand market j, in closed form,
using the following simple formula:
Vi,Vj. (5.48)
Observe that both (5.47) and (5.48) are parallel adjustment pro-
cesses, where in the classical oligopoly problem all of the production
outputs are updated simultaneously, whereas in the spatial oligopoly
model all the production shipments are updated simultaneously. Ex-
pression (5.47) states that if the marginal utility of a firm is equal to
zero, then the production output of the firm will not change at the next
iteration. If the marginal utility is positive, then the production out-
put will increase; if it is negative, and the output was positive, then the
production output of the corresponding firm will decrease in the next
iteration. Finally, if the production output of a firm is zero, and its
marginal utility is negative (or zero), then at the next iteration the pro-
duction output of that firm will remain the same. Hence, one only needs
to obtain the expression for the marginal utility for each firm for any
such example, and then to apply formula (5.47).
5.3. A DISCRETE TIME ALGORITHM 119
Formula (5.47) depicts rational economic behavior. Further, it shows

that, in equilibrium, that is, when q[+1 = q[ for all firms i, at some
iteration T, if the production output q[ is positive, then the marginal
utility of firm i must be zero; if q[ is zero, then the marginal utility
cannot be positive.
An analogous interpretation holds for the spatial oligopoly model, but
in this case shipments and their adjustments take the place of production
outputs. Of course, ultimately the production outputs are recovered from
the commodity shipments.
We now turn to establishing the proof of convergence of the Euler-
type method. First, recall that F( x) is said to be uniformly Lipschitz
continuous, if there exists an L > 0, such that
We now state the following convergence theorem for the Euler-type

method for the spatial oligopoly problem.
Theorem 5.8
In the spatial oligopoly problem, let
F(Q) = (Fl l (Q), ... , F1n(Q), ... , Fm1(Q), ... , Fmn(Q)l,

where Fij( Q) = - 8;S~), be strictly monotone at any equilibrium ship-
ment pattern and assume that Assumption 5.1 is satisfied. Furthermore,
assume that F satisfies either Assumption 2.1 or is uniformly Lipschitz
continuous. Then there exists a unique equilibrium shipment pattern Q*
and any sequence generated by the Euler method
(5.49)
where aT > 0, "IT,

lim aT = 0,
T-+OO
(5.50)
and
(5.51)
converges to Q*.
Proof:
First note that the existence of an equilibrium pattern is implied
by Assumption 5.1 from Proposition 5.1 while the uniqueness result is
guaranteed by the strict monotonicity assumption from Proposition 5.2.
In order to establish the convergence result, we only need to verify
that Assumption 4.1 is satisfied here, by virtue of Theorem 4.2. Note
that Assumption 4.1.1 is a condition, which is satisfied by the selected
sequence an and Assumption 4.1.2 is also satisfied because in the Euler-
type method we have that FT = F and here F is continuous.
In what follows we shall verify Assumption 4.1.4, that is, {QT} gen-
erated by the Euler method is bounded.
Since aT -+ 0, as T -+ 00, there exists an N > 0, such that
aT < (4(1 + B}Jmn)-t, when T ~ N. (5.52)
Select now M large enough so that by Assumption 5.1, for any (i,j)
(5.53)
holds for any Q with Qij ~ M, and
QTj < 2M, VT 5:. N; i = 1, ... ,m; j = 1, ... ,n. (5.54)
We claim now that
QTj 5:. 2M, VT ~ 1; i = 1, ... ,m; j = 1, ... ,n. (5.55)
Since the first N items are guaranteed by (5.54), we only need to

show (5.55) for T = N + lj I = 1,2,.... However, this can be done
inductively starting from I = O. For I = 0, we see that T = Nand (5.52),
(5.53), and (5.54) all hold true. Then observe for I ~ 0 that
QN+l+l = p(QN+l _ aN+1F(QN+l))
implies that
Q~+I+I = max{O,Q~+1 - aN+1Fij(QN+l)}, Vi,j. (5.56)
We now distinguish between two cases:

Case (i). If Q~+l > M, then by (5.3), Fij( QN+l) > 0, so that
Q ~+I+l
~J
< Q~+l
tJ
< 2M . (5.57)
Case (ii). If Qf;+l ~ M, then by (5.56)

Qf;+l+1 ~ IQf;+11 + aN+dFiiCQN+l)l. (5.58)
Notice that according to (5.52)
aN+l < (4(1 + B)y'mn)-l (5.59)
and that, under the linear growth condition
lFij(QN+I)1 ~ IIF(QN+I)1I ~ (1 + B)IIQN+11I ~ (1 + B)2My'mn (5.60)
where the last inequality is from the inductive assumption: Qf;+l ~ 2M.
Combining (5.58), (5.59), and (5.60), we obtain
Q~+l+l ~ IQ~+11 + (4(1 + B)y'mntl(l + B)2My'mn
<
-
IQ~+11
'3
+ !M
2
< ~M.
- 2
(5.61)
Hence, (5.57) and (5.61) establish that
Q ~+I+1
'3
<
-
2M 'Vi J.
, "
provided that Qf;+l ~ 2M, 'Vi,j. Therefore, (5.55) holds for all T. Con-
sequently, {QT} is bounded.
Notice that the existence and the uniqueness of the Cournot-Nash
equilibrium Q* have already been implied in the conditions of the theo-
rem, with the existence suggested by Proposition 5.1 and the uniqueness
ensured by the strict monotonicity of the negative marginal utility. Ac-
cording to Theorem 5.2 (ii)., Q* is a strictly global monotone attractor
and, hence, is the w-limit of the utility gradient process (5.18), i.e.,
w(K) = {Q*}.
Therefore, Assumption 4.1.3 is verified.
The verification of Assumption 4.1.5 is now direct.
For any compact set KI C K, let rl be sufficiently large so that
K I C BTl (Q) n R+n. Since D( t) is monotone decreasing, we have
IIQ(t) - Q*II ~ IIQ(O) - Q*II, 'Vt. (5.62)
Therefore,
{QCt)} c BTlCQ*) n R+n.
UQeKl Ut~O
Hence, the compact set K2 can be chosen as BTl(Q*) n R+n, where
rl = max IIQ - Q*II,
QeKl
so the solution Q(t) is stable . •
Table 5.1: Parameters for a 5-firm oligopoly
firm i Ci Ki f3i
1 10 5 1.2
2 8 5 1.1
3 6 5 1.0
4 4 5 .9
5 2 5 .8
5.3.1 Numerical Examples

We now apply the Euler-type method to compute solutions to several nu-
merical examples. For simplicity, we first present an aspatial oligopoly
example that satisfies variational inequality (5.11) and then two spatial
oligopoly examples that satisfy variational inequality (5.9) Of, equiva-
lently, variational inequality (5.10).
The algorithm, both in the implementation for the aspatial and the
spatial oligopoly problems, was coded in FORTRAN and the system used
for the numerical work was the IBM SP2 at the Cornell Theory Center.
The sequence {aT' TEN} will be discussed for each particular example.
The CPU times are reported exclusive of input and output times.
Example 5.3
The first example is taken from Murphy, Sherali, and Soyster (1982).
The oligopoly consists of five firms, each with a production cost function
of the form:
13· ~
fi(qi) = Ciqi + (f3i ~ 1) Ki-"1; qi f3i ,
1
(5.63)
with the parameters given in Table 5.1. The demand price function is
given by:
(5.64)
i=l i=l
The convergence criterion utilized was: Iq[ - qJ-11 ~ .001, for all i.
The algorithm was initialized at qO = (10,10,10,10, 10)T. We utilized
the sequence: {aT }=1O X {1,!,!,~,~,~, ... }.
Table 5.2: Euler method iterates for a 5-firm oligopoly
I Iteration I qr
T q'3 q!.
0 10.0000 10.0000 10.0000 10.0000 10.0000
1 430.4910 449.5303 468.3089 486.7077 504.5248
2 183.9319 119.1254 0.0000 0.0000 0.0000
3 61.7332 30.9201 33.9350 43.9350 53.9350
4 43.3268 35.7730 39.6143 39.3464 25.8714
5 42.5794 44.4099 47.1765 47.0852 51.7220
6 34.5229 38.2224 39.8953 37.6687 26.4263
7 39.9391 44.2695 46.4305 46.1774 46.4910
8 36.1503 40.7071 42.4355 40.8833 35.1091
9 37.7967 42.5199 44.4679 43.6605 41.4090
10 36.6446 41.4437 43.2815 42.0909 37.9249
11 37.0751 41.9100 43.8055 42.7939 39.4829
12 36.9359 41.7912 43.6757 42.6207 39.0997
13 36.9529 41.8208 43.7097 42.6656 39.1967
14 36.9393 41.8146 43.7031 42.6561 39.1738
15 36.9375 41.8171 43.7059 42.6592 39.1798
16 36.9355 41.8171 43.7059 42.6589 39.1787
17 36.9344 41.8175 43.7061 42.6590 38.1789
18 36.9337 41.8177 43.7063 42.6591 39.1789
The algorithm required 18 iterations and only a negligible amount of

CPU time for convergence. The algorithm converged to
q* = (36.9337,41.8177,43.7063,42.6591, 39.1789f.
The iterates generated by the Euler-type method for this example are
given in Table 5.2. The iterates are depicted graphically in Figure 5.3.
As reported in Nagurney (1993), the projection method, which would
in the above general iterative scheme correspond to FT(Xr ) = F(XT)
with aT = a, for all iterations T, required 33 iterations for convergence
to the same solution with a = .9, under the same initial conditions. The
relaxation method, on the other hand, d. Nagurney (1993), required
only 23 iterations but was more computationally costly, since at each
iteration nonlinear equations must be solved. Also, we emphasize that
600,--------------------------------,
500
~
~ 400
:;
o
.§ 300
-0
~
-g
L
200
Do-
100
8 10 12 14 16 18
Iteration Number
--- Firm 1 --+- Firm 2 ----- Firm 3

--a-- Firm 4 -><- Firm 5
Figure 5.3: Graphical display of iterates of the Euler method for a 5-firm
oligopoly
the conditions for convergence of both the projection and the relaxation
method are more restrictive than those required by the general iterative
scheme described in Chapter 4.
Example 5.4 (cf. Example 5.1)
The Euler-type method is now applied to compute the equilibrium
shipment pattern for Example 5.1, where the production cost functions
are:
2"q1 + q1 + 7, h(q2) = q2 + 13,
=1 2 2
ft(q1)
the unit transaction cost functions are given by:
and the demand price functions are given by:
The algorithm was initialized with QO = (5,5,5, 5? and the con-

vergence criterion used was IQi/1 - QTjl ~ .001, for all pairs i,j. The
sequence {aT} used was: (1,~,~,~,~,~, ... }.
The algorithm converged to Q* = (1,0,0, 2? with qi = di = 1,
qi = d2 = 2, in 22 iterations and in a negligible amount of CPU time.
Table 5.3: Euler method iterates for a 2-firm spatial oligopoly
Iteration T Q11 Q12 Qh Q;2

0 5.000 5.000 5.000 5.000
1 0.000 0.000 0.000 0.000
2 3.500 1.500 3.000 4.000
3 0.000 0.000 0.000 0.000
4 2.333 1.000 2.000 2.667
5 0.000 0.000 0.000 0.111
6 2.333 0.963 1.926 2.630
7 0.000 0.000 0.000 0.796
8 1.750 0.551 1.102 2.000
9 0.000 0.000 0.000 1.311
10 1.750 0.422 0.844 2.000
11 0.109 0.000 0.000 1.578
12 1.356 0.263 0.503 1.916
13 0.503 0.000 0.000 1.729
14 1.199 0.154 0.207 1.946
15 0.766 0.000 0.000 1.876
16 1.039 0.060 0.000 1.959
17 0.984 0.000 0.000 1.976
18 1.001 0.008 0.000 1.990
19 0.998 0.003 0.000 1.995
20 1.000 0.002 0.000 1.998
21 1.000 0.001 0.000 1.999
22 1.000 0.000 0.000 2.000
5.-------------------------------------.
4.5
4
(Il
C 3.5
"~ 3
:.c
(f)
c 2.5
o
't::l 2
1)
~ 1.5
CL
0.5
O~r-~~~~~~~~~~~~~~~~~
o 5 10 15 20 25
Iteration Number
--- Firm 1 Market 1 -+- Firm 1 Market 2 -*"""" Firm 2 Market 1 --Er Firm 2 Market 2
spatial oligopoly
The iterates generated by the Euler-type method are reported in Table

5.3.
The iterates are depicted graphically in Figure 5.4.
In Nagurney (1993), the same problem was solved using a linearized
decomposition by firms algorithm, in which an equilibration algorithm
was embedded to solve the decomposed subproblems in closed form
by taking advantage of the underlying network structure of the prob-
lem, which is bipartite (d. Figure 5.1). For alternative decomposition
schemes for the spatial oligopoly problem, see Nagurney (1988). The
algorithm proposed here for the spatial oligopoly model is, nevertheless,
significantly simpler, than those that have been proposed earlier, and has
the attractive feature that it can be interpreted as an adjustment pro-
cess, in which firms adjust their shipment patterns simultaneously, after
reviewing the previous iteration's (or time period's) patterns. Moreover,
the shipments at each iteration can be computed in closed form,
Example 5.5
The third numerical example consists ofthree firms and three demand
markets with the data for the first two firms and demand markets as in
Example 5.1. The production cost for the third firm is given by:
1 2
!a(q3) = 2"q3 + q3 + 10.
The demand price function for the third demand market are given by:
and the remaining transaction cost functions are given by:
C13(Q13) = Q13 + 2, C23(Q23) = Q23 + 5,

C21(Q13) = 2Q31 + 1, C32(Q32) = Q32 + 5, C33(Q33) = 2Q33 + 3.
The algorithm was initialized with all Q?j'S set to 5, and with the
same convergence tolerance and sequence {aT} as in Example 5.4.
The algorithm converged in 43 iterations, in a negligible amount of
CPU time, to the value of Q* given by:
Qtl = .60, Qt2 = 0.00, Qh = 1.32,

Q;l = 0.00, Q;2 = 1.87, Q;3 = .24,
Q;l = .48, Q;2 = 0.00, Q;3 = .87.
In this example, three of the production shipments at equilibrium are
at level zero, that is, they lie on the boundary.
The iterates generated by the Euler method are depicted graphically
in Figure 5.5.
Production ~~;hiprrlenb: Finn 1
0
0 5 10 15 20 25 30 35 40 45
Iteration Number
1----- Market 1 -+- Market 2 ---+-- Market 3
Production Shipments: Firm 2

4.5
4
'"
~ 3.5
E
Q.
:;: 3
~ 2.5
a
U 2
~
~ 1.5
"- 1
0.5
0
0 5 10 15 20 25 30 35 40 45
Iteration Number
1----- Market 1 --+- Market 2 -+- Market 3
Production ~:; hiprrlent::;: Fir-rn 3
o~~~~~~~~~~~~~~~~~
o 5 10 15 20 25 30 35 40 45
Iteration Number
1----- Market 1 --+- Market 2 --- Market 3
spatial oligopoly

The variational inequality formulation of the Cournot-Nash equilibri-
um dates to Hartman and Stampacchia (1966) and Gabay and Moulin
(1980). The spatial oligopoly model, in variational inequality form, was
introduced in Dafermos and Nagurney (1987). Therein it was also proved
that the limiting case of this model becomes the perfectly competitive
spatial price equilibrium of Section 6.l.
Section 5.1
The projected dynamical system model for the tatonnement process
of Cournot-Nash equilibrium was first proposed in Dupuis and Nagurney
(1993) for the classical oligopoly problem. Nagurney, Dupuis, and Zhang
(1994) later extended that model to the dynamical spatial oligopoly
model (5.18), and proposed an economic assumption on the marginal
utilities (Assumption 5.1) to ensure the existence of Cournot-Nash equi-
librium.
Section 5.2
Arrow and Hurwicz (1977) studied the asymptotical stability of Cour-
not-Nash equilibrium for the utility gradient process for the classical
oligopoly problem. In place ofthe projection operator, II, however, they
used a discontinuous matrix function, I, to multiply the utility gradient
on the right-hand side of the pertinent ODE, in order to ensure that
the tatonnement process would evolve within the nonnegative orthant.
Following the ideas of game theory in Arrow, Hurwicz and Uzawa(1958),
a concavity-convexity assumption was imposed on the payoff functions
of all the associated S-games by Arrow and Hurwicz· (1977), and the
asymptotical stability at Cournot-Nash equilibrium was proved, under
this condition (cf. Chapter 3, Part II therein).
However, realizing the difficulty in verifying these assumptions, a
sufficient condition (Proposition I) was proposed, which assumes linear
and decreasing demand price functions and non decreasing (separable)
production costs. One notices that this sufficient condition has been
generalized in several ways by Proposition 5.3. Particularly, we do not
necessarily require that the demand prices be linear and that the pro-
duction costs be separable. Moreover, we now consider multiple markets
located spatially and transaction cost structures.
Flam and Ben-Israel (1990) proposed a dynamic model of an oligo-
poly using a differential inclusion formulation for a similar tatonnement
process to ours to allow for non differentiable profit functions. Their

condition on the asymptotical stability (Theorem 2) is the same condition
as in Theorem 5.2 (ii).
Under the assumptions oflinear demand price func tions and quadra-
tic production costs functions in classical oligopoly problems, Okuguchi
and Szidarovszky (1990) also investigated the asymptotical stability of
the utility gradient process as a linear dynamical system. However, in
order to avoid the technical obstacle of enforcing the system within the
feasible set, an artificial assumption (Assumption (E)) was imposed that
supposes that the shipment pattern will remain feasible, while adjust-
ing according to the linear ODE. Clearly, such an assumption confines
the stability analysis to interior equilibrium points only. Since regular
Cournot-Nash equilibria contain, as a subset, all equilibria that lie in
the interior of the feasible set, Theorem 5.7 has extended the main re-
sult (Theorem 5.1.1) of Okuguchi and Szidarovszky (1990). Moreover,
it applies to cases with nonlinear marginal utilities. In other words, we
are now able to drop the linearity assumption on the marginal utilities,
which includes, as a special case, the linear prices and quadratic costs
assumption of Okuguchi and Szidarovszky (1990), while our conclusion
holds true for all regular Cournot-Nash equilibria, not only those in the
interior. We emphasize that this achievement can be attributed to the
employment of the new methodology, projected dynamical systems the-
ory, and the associated stability analysis.
In addition, Theorem 5.1.2 of Okuguchi and Szidarovszky (1990) has
been both generalized and strengthened by Proposition 5.7. The latter
considers spatial models with multiple demand markets and transaction
costs, allows for nonseparable price functions and cost functions, and es-
tablishes the exponential rate of convergence for the utility gradient pro-
cess, a result that is stronger than just convergence derived by the former.
It is interesting to point out that Proposition 5.7, as a corollary of The-
orem 5.3, follows from the monotonicity approach, rather than from the
regularity approach, or eigenvalues approach used by Okuguchi and Szi-
darovszky (1990). The concepts of a regular Cournot-Nash Equilibrium
(Definition 5.2) and the Minimal Face Flow (Definition 5.3) are adapted
from Chapter 3 to the oligopoly context. In particular, a Cournot-Nash
equilibrium is regular if and only if it is a regular solution to the varia-
tional inequality problem (5.9).
The results in this section are taken from Zhang and Nagurney (1995).
Section 5.3
The use of the Euler-type method was first proposed by Nagurney,
Dupuis, and Zhang (1994) for the computation of Cournot-Nash equi-
librium in spatial oligopoly problems. The results in this section are
extracted from that reference with the proof of convergence of the Euler
method simplified here with the use of the stability results. The tables
and figures of the generated iterates are included for completeness.
References
Arrow, K. J., and Hurwicz, L., Studies in Resource Allocation Pro-
cesses, Cambridge University Press, New York, 1977.
Arrow, K. J., Hurwicz, 1., and Uzawa, H., Studies in Linear and
Nonlinear Programming, Stanford University Press, Stanford, Cali-
fornia, 1958.
England, 1897.
Dafermos, S., and Nagurney, A., "Oligopolistic and competitive behavior
of spatially separated markets," Regional Science and Urban Economics
17 (1987) 245-254.
Flam, S. P., and Ben-Israel, A., "A continuous approach to oligopolistic
market equilibrium," Operations Research 38 (1990) 1045-1051.
Gabay, D., and Moulin, H., "On the uniqueness and stability of Nash
equilibria in noncooperative games," in Applied Stochastic Control
of Econometrics and Management Science, A. Bensoussan, P.
Kleindorfer, C. S. Tapiero, North-Holland, Amsterdam, The Nether-
lands, 1980.
Hartman, P., and Stampacchia, G., "On some nonlinear elliptic differen-
Murphy, F. H., Sherali, H. D., and Soyster, A. L., "A mathematical pro-
gramming approach for determining oligopolistic market equilibrium,"
Mathematical Programming 24 (1982) 92-106.
Nagurney, A., "Algorithms for oligopolistic market equilibrium prob-

lems," Regional Science and Urban Economics 18 (1988) 425-445.
Nagurney, A., Dupuis, P., and Zhang, D., "A dynamical systems ap-
proach for network oligopolies and variational inequalities," Annals of
Regional Science 28 (1994) 263-283.
Nash, J. F., "Equilibrium points in n-person games," Proceedings of the
National Academy of Sciences, USA 36 (1950) 48-49.
Nash, J. F., "Noncooperative games," Annals of Mathematics 54 (1951)
286-298.
Okuguchi, K. , Expectations and Stability in Oligopoly Models,
Lecture Notes in Economics and Mathematical Systems 138, Springer-
Verlag, Berlin, Germany, 1976.
Okuguchi, K., and Szidarovszky, F., The Theory of Oligopoly with
Multi-Product Firms, Lecture Notes in Economics and Mathematical
Systems 342, Springer-Verlag, Berlin, Germany, 1990.
Qiu, Y., "Solution properties of oligopolistic network equilibria," Net-
works 71 (1990) 565-580.
Zhang, D., and Nagurney, A., "Stability analysis of an adjustment pro-
cess for oligopolistic market equilibrium modeled as a projected dy-
namical system," School of Management, University of Massachusetts,
Amherst, Ma.ssachusetts, 1995.
Chapter 6
Spatial Price Equilibrium
The perfectly competitive spatial price equilibrium models of Samuelson

(1952) and Takayama and Judge (1971) have provided the basic frame-
work for the study of a variety of applications in the fields of energy,
agricultural markets, as well as in international trade. Moreover, the
demand to extend these fundamental models in various directions has
stimulated the development of mathematical methodologies for analysis
and computation.
For example, the basic models have later been extended from for-
mulations as optimization problems to variational inequality problems
to allow for the treatment of asymmetric price and cost functions and
multicommodity situations (cf. Florian and Los (1982), Dafermos and
Nagurney (1987) and Nagurney (1987), among others). We refer to
Nagurney (1993) and the references therein for the recent research in
the formulation, theoretical analysis, computation, and sensitivity anal-
ysis of spatial price equilibrium problems.
Nevertheless, although the seeds for a dynamical systems approach to
spatial price equilibrium problems appeared as early as in the cornerstone
work of Takayama and Judge (1971), where a variety of tatonnement or
adjustment processes were introduced, research attention has somehow
lagged in following this direction relative to the pace of developments in
the static study of spatial price equilibrium.
In this chapter we seek to fill this void, at least in part, through the
development and theoretical analysis of spatial market models, whose
respective sets of solutions to the variational inequality problems gov-
erning their equilibrium conditions, correspond to the sets of solutions
133
134 CHAPTER 6. SPATIAL PRICE EQUILIBRIUM
of the proposed projected dynamical systems.

The presentation of the chapter is as follows. In Section 6.1, we
review the spatial price equilibrium model in quantity variables, state
its variational inequality formulation, and articulate the dynamic model
for the adjustment process, along with its economic interpretation. The
stationary points of this adjustment process coincide with the spatial
price equilibria.
Section 6.2 then presents the stability results for the proposed adjust-
ment process for this spatial price problem. We also include numerical
examples to illustrate the applicability of the stability analysis.
In particular, in Section 6.2.1, different monotonicity conditions are
assumed for the price and cost functions. It turns out, as anticipated,
that the stronger the monotonicity condition satisfied by the supply
prices, demand prices, and unit transaction costs, the better the sta-
bility enjoyed by the spatial price equilibrium. An interesting byproduct
follows directly from the stability result; in particular, when the price and
cost functions are monotone, then the spatial price equilibrium points
form a convex set.
In the second approach, proposed in Section 6.2.2, we give the def-
inition of a regular spatial price equilibrium, adapted from Chapter 3,
under which we then provide a sufficient condition for the asymptoti-
cal stability of the spatial price equilibrium without the monotonicity
assumptions.
In Section 6.3 we discuss the Euler method for the computation of
solutions to the quantity model, along with convergence results. It turns
out that as in the oligopoly problems discussed in Chapter 5, the real-
ization of the Euler method for spatial price equilibrium problems also
yields very simple subproblems, which can be solved in closed form. We
provide numerical results in Section 6.4 for the Euler method applied
to both small-scale and large-scale problems. In the case of the large-
scale examples, we also compare the performance of the Euler method
when implemented both serially and on two distinct (massively) parallel
computer architectures.
Section 6.5 then develops the dynamical spatial model in both price
and quantity variables and discusses the underlying adjustment process.
For this model, Section 6.6 then studies theoretically the Euler method,
which is then applied in Section 6.7 to compute solutions to both small-
scale examples, for illustrative purposes, and to large-scale problems,
when the Euler method is implemented, again, on two distinct massively
6.1. THE QUANTITY MODEL 135
parallel computer architectures.
6.1 The Quantity Model

In this section we focus on the quantity model, named so since all the
variables consist of quantity variables. We first present the variational
inequality formulation of the equilibrium conditions in 6.1.1 and then
the projected dynamical systems model in 6.1.2.
6.1.1 A Variational Inequality Formulation

Consider the spatial price equilibrium model in quantity variables, with
m supply markets and n demand markets involved in the production and
consumption of a homogeneous commodity under perfect competition.
This model, in a limiting sense, yields the imperfectly competitive spatial
oligopolistic model discussed in Chapter 5.
Denote a typical supply market by i and a typical demand market
by j. Let Si denote the supply and 7ri the supply price of the commodity
at supply market i. Let dj denote the demand and pj the demand price
at demand market j. Group the supplies and supply prices, respectively,
into a column vector S E Rm and a row vector 7r E Rm. Similarly, group
the demands and demand prices, respectively, into a column vector d E
Rn and a row vector p E Rn. Let Qij denote the nonnegative commodity
shipment between the supply and demand market pair (i,j), and let Cij
denote the unit transaction cost associated with trading the commodity
between (i,j). The unit transaction costs are assumed to include the unit
costs of transportation from supply markets to demand markets, and,
depending upon the application, may also include a tax/tariff, duty, or
subsidy incorporated into these costs. Group the commodity shipments
into a column vector Q E R mn and the transaction costs into a row
vector C E Rmn.
Assume that the supply price at any supply market may, in general,
depend upon the supply of the commodity at every supply market, that
is,
7r = 7r(s), (6.1)
where 7r is a known function.
Similarly, the demand price at any demand market may depend upon,
in general, the demand of the commodity at every demand market, that
is,
p = p(d), (6.2)
where p is a known function.
The unit transaction cost between a pair of supply and demand mar-
kets may depend upon the shipments of the commodity between every
pair of markets, that is,
c c(Q), = (6.3)
where c is a known function.
The supplies, demands, and shipments of the commodity, in turn,
must satisfy the following feasibility conditions:
n
Si = EQij, i = 1, ... ,m (6.4)
j=l
m
dj = EQij, j = 1, ... ,n (6.5)
i=l
Qij ~ 0, i = 1, ... ,mjj = 1, ... ,n. (6.6)

For a graphical depiction of the underlying structure of spatial price
equilibrium problems, see Figure 6.l.
In other words, according to (6.4), the supply at each supply market
is equal to the commodity shipments out of that supply market to all
the demand markets. Similarly, according to (6.5), the demand at each
demand market is equal to the commodity shipments from all the sup-
ply markets into that demand market. These equations are sometimes
referred to as conservation of flow equations to highlight (and to exploit
algorithmically) the network structure of the problem depicted in Figure
6.1 (cf. Nagurney (1993».
Definition 6.1 (Spatial Price Equilibrium)
Following Samuelson (1952) and Takayama and Judge (1971), the
supply, demand, and commodity shipment pattern (s*, Q*, d*) constitutes
a spatial price equilibrium, if it is feasible with respect to (6.4)-(6.6),
and for all pairs of supply and demand markets (i,j), it satisfies the
conditions:
( s *) + Cij (Q*) { = pj(d*), if Qij > 0

> (6.7)
1ri
- P3.(d*) , if Qij = o.
6.1. THE QUANTITY MODEL 137
Supply Markets i = 1, 2, ... , m
• • •
• • •
Demand Markets j =1, 2, ... , n
Figure 6.1: Graphical depiction of the spatial price equilibrium problem
Hence, if the commodity shipment between a pair of supply and

demand markets is positive at equilibrium, then the demand price at
the demand market must be equal to the supply price at the originating
supply market plus the transaction cost. If the commodity shipment is
zero in equilibrium, then the supply price plus the transaction cost can
exceed the demand price.
It is well-known (see Nagurney (1993) for a proof and additional
references) that the spatial price equilibrium can be formulated as a
variational inequality problem. Precisely, we have
A commodity supply, shipment, and demand pattern (s*,Q*,d*) E
](1 is a spatial price equilibrium if and only if it satisfies the following
variational inequality problem:
(1r(s*),s-s*)+(c(Q*),Q-Q*)+(-p(d*),d-d*) ~ 0, V(s,Q,d) E](1,

(6.8)
where](1 == {(s,Q,d): (6.4) - (6.6) hold}.
The variational inequality problem (6.8) can also be put into standard
form (2.1) as follows. Let x be the column vector in Rm+mn+n defined by
x = (s, Q, d) and let F( x) be the row vector in Rm+mn+n consisting of the
three vectors (ll'(s),c(Q),-p(d)). Finally, let the feasible set]( =](1,

where k = m + mn + n. Then clearly, variational inequality (6.8) is of
the form (2.1).
6.1.2 The Projected Dynamical Systems Model

Here we present an ordinary differential equation whose stationary points
correspond to the set of spatial price patterns satisfying equilibrium
conditions (6.7). However, we first provide an alternative variational
inequality formulation to that of (6.8).
Note that, in view of (6.4) and (6.5), one can define the excess price,
-Fij, between a pair of markets (iJ), as
(6.9)
Letting F(Q) be the mn-dimensional row vector with (i,j)-th component
Fij(Q), then variational inequality (6.8) is equivalent to:
An Alternative Variational Inequality Formulation
Determine Q* E ](, such that
(F(Q*),Q - Q*) ~ 0, TlQ E ](, (6.10)

where ]( == R+n.
We now consider the adjustment process of the commodity shipments
between the supply and demand markets. Notice that for a current ship-
ment pattern Q(t), the excess price, -Fij(Q(t)), given by (6.9), is the
difference between the demand price and the supply price and the unit
transaction cost associated with market pair (i,j). Under perfect compe-
tition, it is plausible that the rate of change of the commodity shipment
between the supply and demand market pair (i,j) is in proportion to
the excess price, -Fij(Q), as long as the commodity shipment Qij is
positive. Namely, when Qij > 0,
(6.11a)
However, when Qij = 0, the nonnegativity condition (6.6) enforces the
commodity shipment Qij to remain zero when Fij(Q) ~ 0. Hence, in this
case, ~me is ensured of witnessing only possible increases of the shipment.
Namely, when Qij = 0,
(6.11b)
6.2. STABILITY 139
Combining (6.11a) and (6.11b), one can write the following pertinent
ordinary differential equation (ODE) for the adjustment process of the
commodity shipment in vector form as
Q= IIK(Q, -F(Q)). (6.12)
The projected dynamical system defined by (6.12) reflects the mech-

anism of an adjustment of the commodity shipments over time. When
the shipment of the commodity from supply market i to demand mar-
ket j is positive at the moment t, i.e., Qij(t) > 0, it will increase or
decrease at a rate of the excess price, -Fij(Q(t)), depending on whether
-Fij(Q(t)) is positive or negative (d. (6.11a)). However, once the ship-
ment Qij(t) is reduced to zero, it stays unchanged until the next signal
of positive excess price, -Fij(Q(t)) > 0, and then increases at that rate
(d. (6.11b)).
A direct application of Theorem 2.4 then yields
Theorem 6.2
Q* solves the VI (6. 10) if and only if Q* is a stationary point of ODE
°
(6.12), that is,
= IIK(Q*, -F(Q*)). (6.13)
Theorem 6.2 establishes that the necessary and sufficient condition

for a commodity shipment pattern Q* to be a spatial price equilibrium
is that Q* is a stationary point of the commodity shipment adjustment
process defined by ODE (6.12). In fact, the spatial price equilibrium
conditions (6.7) are immediately derived by putting zeroes at the left-
hand sides of (6.11a) and (6.11b).
6.2 Stability
Given that the projected dynamical system defined by (6.12) depicts an
adjustment process of the commodity shipments through time evolution,
with its stationary points corresponding to the spatial price equilibrium
points, whether and how the adjustment process approaches the spatial
price equilibrium naturally becomes of major interest. Towards these
ends, we now provide two distinct techniques for stability analysis out-
lined in Chapter 3 which we adapt and extend specifically for the spatial
market model in quantity variables.
6.2.1 Stability Under Monotonicity

We now address the questions, whether and under what conditions, does
the commodity adjustment process defined by ODE (6.12) approach a
spatial price equilibrium?
Let QO(t) be the unique adjustment process satisfying ODE (6.12)
with initial shipment pattern QO. In other words, QO(t) solves the initial
value problem (IVP)
Q= II(Q,-F(Q)), Q(O) = QO, (6.14)
with QO(O) = QO. For convenience, we will sometimes write QO. t for
QO(t).
Theorem 6.3
Suppose that (s*, Q*, d*) is a spatial price equilibrium according to
(6.4)-(6.7) and that the supply prices 7r, transaction costs c, and negative
demand prices - p are (locally) monotone, respectively, at s* ,Q*, and d* .
Then (s*, Q*, d*) is a globally monotone attractor (monotone attractor)
for the adjustment process solving ODE (6.12).
Proof:
For any (s,Q,d) satisfying (6.4)-(6.7), (in a neighborhood of
(s*, Q*, d*)), we have
(F(Q) - F(Q*),Q - Q*}

m n
= L L (7ri(S) - 7ri(S*) + Cij(Q) - Cij(Q*) - pj(d) + pj(d*))(Qij - Qij)
i=l j=l
= (7r(s) - 7r(s*),s - s*} + (c(Q) - c(Q*),Q - Q*}

-(p(d) - p(d*),d - d*} ;::: O. (6.15)
(6.15) implies that F is, indeed, monotone (locally monotone) at Q*.
It follows from Theorem 3.5 that Q* is a globally monotone attractor
(monotone attractor) for the adjustment process . •
An application of Theorem 6.3 yields the following result:
Corollary 6.1
If the supply prices 7r, transaction costs c, and negative demand prices
- p are monotone with respect to their own arguments, then the spatial
price equilibrium shipments form a convex set.
6.2. STABILITY 141
Proof:
Let Ql and Q2 be two distinct equilibrium shipments, and let
(6.16)
for any arbitrarily chosen A E (0,1). By Theorem 6.3, Ql and Q2 are

both globally monotone attractors. Hence, one has that, for any t > 0
IIQ(t) - QllI ::; IIQ - Qlll = (1- A)IIQl _ Q211 (6.17)
IIQ(t) - Q211 ::; IIQ - Q211 = AIIQl - Q211. (6.18)

Adding (6.17) and (6.18) gives
which, with an application of the triangle norm inequality, implies that
However, (6.16), (6.17), and (6.19) could only hold simultaneously when
Q(t) = Q, "It> 0, (6.21)
or, equivalently,
II(Q, -F(Q)) = O. (6.22)
According then to Theorem 6.2, Q is an equilibrium shipment pattern .
• Following Theorem 6.3, stronger stability results can be obtained by
imposing strict monotonicity and strong monotonicity conditions on the
transaction costs, as are listed below.
Theorem 6.4
Suppose that (s*, Q*, d*) is a spatial price equilibrium according to
(6.4)-(6.7) and that the supply prices 7r and negative demand prices -p
are monotone, respectively, at s* and d*. Furthermore, if the transac-
tion costs c are (locally) strictly monotone at Q*, then the spatial price
equilibrium (s*, Q*, d*) is a (strictly monotone attractor) globally strictly
monotone attractor.
Proof:
In view of (6.15), for any (s,Q,d) satisfying (6.4)-(6.7) (and in a
neighborhood of (s*, Q*, d*», we now have for any Q :I Q*,
(F(Q) - F(Q*),Q - Q*} ~ (c(Q) - c(Q*),Q - Q*} > O. (6.23)
The rest of the proof follows directly from Theorem 3.6, by virtue of the
strict monotonicity of F at Q* . •
Analogous to Corollary 6.1, we have
Corollary 6.2
If the supply prices 11" and the negative demand prices -pare mono-
tone with respect to their own arguments, and the transaction costs c
are strictly monotone with respect to Q, then there is at least one spatial
price equilibrium.
Proof:
Obvious from Theorem 6.4 and the definition of a globally strictly
monotone attractor. •
Theorem 6.5
Under the condition of Theorem 6.3 plus that the transaction costs
c are strongly monotone (locally strongly monotone) at Q*, the spatial
price equilibrium (s*, Q* ,d*) is globally exponentially stable (exponen-
tially stable).
Proof:
In view of (6.15), for any (s,Q,d) satisfying (6.4)-(6.7), (and in a
neighborhood of (s*, Q*, d*», we now have, for some 'TJ > 0,
(F(Q)-F(Q*),Q-Q*) ~ (c(Q)-c(Q*),Q-Q*) ~ 'TJIIQ-Q*1I2. (6.24)
Hence, F is strongly monotone (locally strongly monotone) at Q*. The

desired result follows from Theorem 3.7 . •
We now present the following theorem as the strongest stability re-
sult. Namely, the spatial price equilibrium can be reached in finite time
through the adjustment process, under a certain monotonicity condition.
This result is interesting since under this condition the spatial price equi-
libria are not merely asymptotical states of the underlying economics,
but, rather, are what individuals might expect to witness in practice.
6.2. STABILITY 143
Theorem 6.6
Under the condition of Theorem 6.3 plus that the transaction costs c
are locally strongly monotone with degree a < 2 at Q*, the spatial price
equilibrium (s*, Q*, d*) is a finite-time attractor.
Proof:
For any (s,Q,d) satisfying (6.4)-(6.7), and in a neighborhood of
(s*, Q*, d*), we have, under the condition of Theorem 6.6, that
(F(Q)-F(Q*),Q-Q*) ~ (c(Q)-c(Q*),Q-Q*) ~ 1]IIQ-Q*lIa. (6.25)
Hence, F is locally strongly monotone at Q* with degree a < 2. The

proof is completed by applying Theorem 3.8 . •
6.2.1.1 An Example
In the following, we conduct stability analysis at the spatial price equi-
librium for a numerical example taken from Nagurney (1993).
Example 6.1
Suppose that there are two supply markets and two demand markets
that are spatially located. The supply price functions are given by:
The demand price functions are given by:
and the unit transaction costs are given by:
cu(Q) = Qu + 0.5Q12 + 1, C12(Q) = 2Q12 + Q22 + 1.5,
It is easy to see that the Jacobian matrices of these functions are posi-
tive definite constant matrices, and, hence, are strongly positive definite.
Therefore, the supply prices, transaction costs, and negative demand
prices are strongly monotone. By virtue of Theorem 6.5, the unique spa-
tial price equilibrium in this example is globally exponentially stable. In
fact, the equilibrium supply, shipment, and demand pattern (s*, Q*, d*)
in this example is given by Nagurney (1993):
sr = 3, s; = 2,
Qr1 = 1.5, Qr2 = 1.5, Q;l = 0, Q;2 = 2,
~ = 1.5, d; = 3.5,
with equilibrium supply prices, costs, and demand prices:
1I"1(S*) = 19, 1I"2(S*) = 10,

Cll(Q*) = 3.25, C12(Q*) = 6.5, C21(Q*) = 18, C22(Q*) = 15.5,
p1(d*) = 22.25, p2(d*) = 25.5.
6.2.2 Stability Under Regularity

In this section we explore the stability of the spatial price equilibrium
under conditions distinct from the monotonicity conditions imposed in
Section 6.2.1. The following regularity definition of spatial price equilib-
rium is adapted from Definition 3.9.
Definition 6.2
A spatial price equilibrium (s*, Q* , d*) is regular if
1I"i(S*) + Cij(Q*) - pj(d*) > 0, when Qij = o. (6.26)
The proposed regularity condition excludes the possible boundary

case of spatial price equilibrium when there is zero equilibrium shipment
between a pair of supply and demand market associated with a zero ex-
cess price. In other words, at a regular spatial price equilibrium, there is
a positive commodity shipment between every pair of supply and demand
markets, except those with negative excess prices.
The following definitions and notations are prompted for this environ-
ment in order to establish stability at a regular spatial price equilibrium.
Let M = {1,2, ... ,m} and N = {1,2, ... ,n}. For any Q* E R+n, we
denote:
U(Q*) {(i,j) E M X N : Qij > O} (6.27)
V(Q*) {(i,j) E M XN : Qij = O} (6.28)
6.2. STABILITY 145
or, respectively, by U and V when no confusion is to be caused. Denote

by u and v, respectively, the cardinality of U( Q*) and V( Q*). Hence,
U( Q*) u V( Q*) = M x N, and u + v = mn.
Correspondingly, any vector W E Rmn can be decomposed into
(6.29)
and
(6.30)
Let I be a homomorphic identity I : Rn ~ Rmn such that, for any
WE Rmn,
(6.31)
Then, we have
(6.32)
The following definition introduces a dynamical system that inhabits
a face of the constraint set where the spatial price equilibrium situates.
Definition 6.3
The Minimal Face Flow at a spatial price equilibrium Q* is the dy-
namical system that solves
(6.33)
where
(6.34)
Due to the fact that the right-hand side of (6.33) is continuously

differentiable, the minimal face flow is a clafosical dynamical system (cf.
Hirsh and Smale (1974».
First, we have
Theorem 6.7
For any spatial price equilibrium Q*, its minimal face flow has a
stationary point Q*u.
Proof:
It follows from the equilibrium conditions (6.7) that Pij(Q*) = 0,
when (i,j) E U(Q*), i.e., pU(Q*) = o. The proof is complete with
notice that I(Q*U) = Q* . •
A fundamental correspondence with regard to the stability between

the adjustment process and the minimal face flow is indicated in the
following:
Theorem 6.8
Suppose Q* is a regular equilibrium shipment. Then Q* is stable for
the adjustment process solving (6.12), if Q*u is stable for the minimal
face flow solving (6.33); Q* is asymptotically stable for the adjustment
process, if Q*u is asymptotically stable for the minimal face flow.
Proof:
Notice that the minimal face flow defined here is a translation from 0
to Q*u of the minimal face flow in Section 3.2, and so these two minimal
face flows, although defined slightly differently, nevertheless have the
exact same stability property. The conclusion now follows directly from
Theorem 3.4 as a special case when K = R+n. •
The desired result of stability of the adjustment process at a regular
spatial price equilibrium is presented below.
Theorem 6.9
Let Q* be a regular equilibrium shipment. If all the eigenvalues of
the Jacobian matrix VG( Q*U) of G at Q*u have positive real parts, then
the adjustment process defined by (6.12) is asymptotically stable at Q*.
Proof:
According to Hirsh and Smale (1974), the minimal face flow is asymp-
totically stable at Q*u, provided that every eigenvalue of V G( Q*U) has
a positive real part. The result of the theorem now follows directly from
Theorem 6.8, because the asymptotical stability of the minimal face flow
implies the asymptotical stability of the adjustment process when Q* is
regular . •
It is worth mentioning that the Jacobian matrix VG(Q*u) in Theo-
rem 6.9 is nothing else but the u X u submatrix of the major Jacobian
V F(Q*) with rows and columns in the index set U(Q*). In fact, using
(6.32), we have
VG(Q*u) = 8G(Q*u)/8Qu = 8Fu (I(Q*u)/8Qu

= 8Fu (Q*)/8Qu = [VF(Q*)]uxu,
where we denote by [A]uxu the submatrix of A with elements aijj i E
U,j E U.
6.2. STABILITY 147
Theorem 6.9 suggests that, in order to explore the asymptotical sta-

bility of the adjustment process at a regular spatial price equilibrium,
(s* , Q* , d*), one needs only to extract a su bmatrix of size u from the J a-
cobian of the negative of the excess price F at Q*, and to calculate the
eigenvalues of this submatrix. Therefore, when there are many zero ship-
ments within Q*, u will be small, and the computation of the eigenvalues
will be relatively easy.
6.2.2.1 An Example
The following example highlights the simplicity of applying Theorem 6.9
in order to check the asymptotical stability at a regular spatial price
equilibrium. The problem consists of two supply markets and two de-
mand markets. Since the supply prices are not monotone, the theorems
established in Section 6.2.1 to examine the stability are no longer appli-
cable.
Example 6.2
Suppose that there are two supply markets, with supply price func-
tions:
1l'l(S) = Sl + S2 + 4, 1l'2(S) = 2s 1 + S2 + 5,
two demand markets, with the demand price functions:
and the unit transactions costs are now fixed constants given by:
Cn = 2, C12 = 3, C21 = 3, C22 = 4.

An equilibrium supply, shipment, and demand pattern (s*, Q*, d*) is
then given by:
si = 1, = 0, s;
Qi1 = 1, Qi2= 0, Q;l = 0, Q;2 = 0,
di = 1, d; = 0,
with equilibrium supply prices, costs, and demand prices:
Cll = 2, C12 = 3, C21 = 3, C22 = 4,

Pl(d*) = 7, p2(d*) = 4.
According to Definition 6.2, (s*, Q*, d*) is a regular spatial price equi-
librium. Since the non-zero shipment pairs U(Q*) = {ll}, one has that
is a number with eigenvalue 2 > O. Therefore, an application of Theorem

6.9 yields that the spatial price equilibrium (s*, Q*, d*) is asymptotically
stable.

Although the dynamical system (6.12) provides a continuous adjustment
process, a discrete time process is needed for actual computational pur-
poses.
Recall from Chapter 4 that the proposed algorithms for obtaining a
stationary point of a projected dynamical system all take the form
(6.35)
where, without loss of generality, the "r" denotes an iteration (or time
period), {an r E N} is a sequence of positive scalars, and the sequence
of vector fields {FrO,r E N} "approximates" F(·).
Recall that the Euler-type method, which is the simplest algorithm
induced by the above general iterative scheme, has, in turn, the form
for all r E Nand Q E J(.
In particular, in the context ofthe spatial price equilibrium model in

quantity variables, the fact that the feasible set J( is the nonnegative or-
thant, the projection operation can be evaluated explicitly and in closed
form. In view of this, one need only, at each iteration r, to compute
for each supply and demand market pair (i,j), the commodity shipment
Qi/l as follows:
(6.36)
Note that (6.36) is a parallel adjustment process in that each of the

mn market pair subproblems can be solved simultaneously at each iter-
ation. This discrete time adjustment process is also economically mean-
ingful in that the commodity shipment between a pair of markets will
increase if the demand price exceeds the supply price plus the transaction
cost; it will decrease if the demand is lower than the sum of the supply
price and transaction cost associated with that shipment. Furthermore,
it is easy to see from expression (6.36) that if Q[j is positive, and the
supply price plus transaction cost is identically equal to the demand
price, then the commodity shipment will be left unchanged. Similarly,
if the supply price plus transaction cost exceeds the demand price at an
iteration T for a particular pair of markets (i, j), and Q[j = 0, then there
will also be no shipment of the commodity between markets i and j at
the subsequent iteration.
We now introduce an assumption:
Assumption 6.1
Suppose that there exists a sufficiently large M, such that
(6.37)
for all supply and demand market pairs (i,j) and all Q with Qij ~ M.
In fact, Assumption 6.1 is a natural assumption imposed on a spatial
price equilibrium model, guaranteeing an existence of an equilibrium, as
is shown in the following proposition.
Proposition 6.1
Suppose that for a spatial price equilibrium problem the supply prices,
transaction costs, and demand prices satisfy Assumption 6.1. Then there
exists at least one equilibrium point.
Proof:
Let R = YmnM. Consider the variational inequality problem VIR
restricted on the closed ball BR with radius R centered at 0. That is,
determine xR E BR n R+n, such that
(F(XR),y - XR) ~ 0, Vy E BR n R+ n , (6.38)
where F(.) is restricted on BR.

Since BR n R+n is now compact and F(·) is continuous, from the
results in Hartman and Stampacchia (1966), VIR admits at least one
solution QR' If for some (i,j), (QR)ij ~ M, then by Assumption 6.1

Fij(QR) > O. However, this is impossible because z E BR n R+n defined
as:
(QR)ik' V(l,k):I (i,j)
Zlk = {
~(QR)ij' (l,k) = (i,j),
where I = 1, ... , m; k = 1, ... , n, will violate (6.38) by giving
(F(QR), Z - QR) < O.
Therefore, (QR)ij < M for all i = 1, ... ,m; j = 1, ... ,n, that is, IIQRII <
JmnM = R.
Applying again the results of Hartman and Stampacchia (1966), gives
us the existence of the equilibrium pattern for the (original) spatial price
equilibrium problem in quantity variables . •
We are now ready to state the convergence theorem for the Euler-type
method for the spatial price equilibrium problem.
Theorem 6.10
Let Fij(Q) = 1l"i(s)+cij(Q)-pj(d); i = 1, ... ,m; j = 1, ... ,n,
satisfy Assumption 6.1 and assume that F( Q) is strictly monotone at
any equilibrium shipment pattern Q*. Furthermore, assume that F either
satisfies Assumption 2.1 or is uniformly Lipschitz continuous. Then any
sequence generated by the Euler method
(6.39)
where aT > 0, "IT,

lim aT
T-+oo
= 0, (6.40)
and
(6.41)
converges to the unique equilibrium point Q*.

Proof:
In view of Theorem 4.2, one only needs to verify that Assumption
4.1 is satisfied here. Note that Assumption 4.1.1 is a condition, which
is satisfied by the selected sequence aT, and Assumption 4.1.2 is also
satisfied because FT = F in the Euler-type method and F is continuous.
In what follows, we are going to verify first that Assumption 4.1.4,

i.e., {QT} generated by (6.39) is bounded.
Since aT -+ 0, as T -+ 00, there exists an N > 0, such that
aT < (4(1 + B)y'mn)-l when T ~ N. (6.42)
Choose M large enough so that
(6.43)
uniformly holds for any Q with some Qij > M, and
Qrj < 2M, 'tiT:::; N; i = 1, ... ,m; j = 1, ... , n. (6.44)
We claim now that
Qrj :::; 2M 'tiT ~ 1; i = 1, ... ,m; j = 1, ... ,n. (6.45)
Since the first N items are guaranteed by (6.44), one only needs to show
(6.45) for T = N + I; I = 1,2, .... However, this can be done inductively
as follows. First, observe that, for I ~ 0,
implies
Q1J-!':+l+l = max{O ' 1

Q-!,:+l
J
_ aN+1 RtJ.(QN+l)} , 'tIi, j. (6.46)
We now distinguish between two cases:
Case (i). If Q~+l > M, then by (6.43) Fij(QN+I) > 0, so that
QtJ-!':+l+l < Q-!,:+l

tJ
< 2M • (6.47)
Case (ii). If Q~+l :::; M, then by (6.46)
Q~+I+1 :::; JQIT+1J + aN+r1 Fij(QN+l)J. (6.48)
Notice that by (6.42)
(6.49)
and that, under the linear growth condition

where the last inequality is from the inductive assumption: Qf;+l :s: 2M.
Combining (6.48), (6.49), and (6.50), one obtains
Qf;+l+1 :s: IQf;+ll + (4(1 + B)y'mn)-I(l + B)2M y'mn

N+l 1 3
:s: IQij I + 2M :s: 2M. (6.51)
Hence, (6.41) and (6.51) show that
Q ~+l+1
I) <
_ 2M , v\.Ji , J.,
provided that Qf+l :s: 2M, 'Vi,j.

Indeed, (6.44) and (6.42) mean that we can start this inductive de-
duction from 1 = 0 and, therefore, (6.45) is true for all T. Consequently,
{QT} is bounded.
We now move on to verify Assumption 4.1.3 and Assumption 4.1.5.
Notice that the conditions of Theorem 6.10 ensure that there exists a
unique equilibrium shipment pattern Q*, with the existence suggested
by Proposition 6.1 and the uniqueness implied by strict monotonicity.
Applying Theorem 3.6, Q* is a strictly global monotone attractor and,
hence, is the w-limit set of the projected dynamical system governed by
Q = n(Q, -F(Q)), i.e.,
w(K) = {Q*}.
Therefore, Assumption 4.1.3 is verified.
The verification of Assumption 4.1.5 now is direct. For any compact
set KI, let RI be sufficiently large so that KI C BRl (Q*) n R+n. Since
D(t) is monotone decreasing, we have
IIQ(t) - Q*II :s: IIQ(O) - Q*II, 'Vt. (6.52)
Therefore,
UQeK1 Ut~O {Q(t)} C BR1(Q*) n R+n.
Consequently, the compact set K 2 can be chosen as B Rl (Q*) n R+ n ,
where RI = maJCQeKl IIQ - Q*II, so the solution Q(t) is stable . •
Theorem 6.10, hence, represents the convergence proof of the Euler-
type method in the context of the spatial price equilibrium problem in
quantity variables, where Assumption 2.1 and Assumption 6.1 serve as
sufficient conditions to guarantee convergence. In particular, Assump-
tion 6.1 is imposed to ensure the boundedness of the sequence generated
by the Euler-type method.
6.4. NUMERICAL RESULTS 153
6.4 Numerical Results

In this section we present numerical results for the Euler method applied
for the computation of both small-scale and large-scale spatial price equi-
librium problems in quantity variables. In Section 6.4.1 we consider the
computation of classical spatial price equilibrium problems, whereas in
Section 6.4.2 we consider the solution of nonlinear and asymmetric prob-
lems. The latter, in contrast to the former, cannot be reformulated as
optimization problems.
In the case of the large-scale examples, we describe the massively par-
allel implementation of the Euler method. We begin with a discussion of
the implementation for spatial price equilibrium problems with separa-
ble and linear supply price, demand price, and transaction cost functions
in Section 6.4.1.2, and then turn to a discussion of the implementation
for asymmetric and nonlinear problems in Section 6.4.2.2. The language
used in the massively parallel implementation was CM FORTRAN and
the architectures selected were the Thinking Machine's CM-2 machine
with a SUN serving as the front end and the Thinking Machine's CM-5.
The CM-2 is a distributed memory SIMD (Single-Instruction Mul-
tiple Data) massively parallel processing system. The mode of compu-
tation is data level parallelism, that is, all processors execute identical
operations. The CM-2 system utilized had 32K processors in its config-
uration and one could access, 8K, 16K, or 32K processors.
The CM-5 is a distributed memory MIMD (Multiple-Instruction Mul-
tiple Data) massively parallel processing architecture. It consists of pro-
cessing nodes that are SPARC processors, each of which has 4 proprietary
attached vector units. The system utilized had 512 nodes and it was also
possible to access 64 nodes, 128 nodes, or 256 nodes.
For additional background on parallel architectures, languages, as
well as applications, see Nagurney (1995).
In the case of the solution of the small-scale examples, the algorithm
was implemented in FORTRAN on an IBM SP2.
6.4.1 Computation of Classical Problems

The "classical" spatial price equilibrium problem, dating to Samuelson
(1952) and Takayama and Judge (1971), assumes that the supply price
function at a supply market i, cf. (6.1), is of the form
(6.53)
the demand price function at a demand market j, cf. (6.2), is ofthe form
(6.54)
and the unit transaction cost function associated with shipping the com-
modity between supply and demand market pair (i,j), cf. (6.3), is of
the form
(6.55)
with Ti,ti,mj,qj,gij,hij > 0, for all market pairs i,j.
In view of the Proposition 2.3, it is easy to see that since the J acobians
of the above supply price, negative demand price, and transaction cost
functions are symmetric, in fact, diagonal, (and positive definite) the
problem can be reformulated as an optimization problem, which in view
of the linearity of the functions, becomes a (strictly convex) quadratic
programming problem. The optimization problem, using (6.4) and (6.5),
is given by:
n m m
- :~:) ~j (L: Qij)2 + qj L: Qij).
j=1 i=1 i=1
The forthcoming numerical examples in Section 6.4.1, hence, illus-

trate an application of the projected dynamical systems approach to the
computation of solutions to optimization problems.
6.4.1.1 A Small-Scale Example

For illustrative purposes, we now provide a small numerical example.
Example 6.3
Consider a spatial price equilibrium problem in quantity variables
consisting of two supply markets and two demand markets. The supply
price functions are given by:
The unit transaction cost functions are given by:

3.5.,------------------,
~ 2.5
Q)
E
1
Vl
2
>-
'ij 1.5
a
E
E
8 1
0.5
2 3 4 5 6
Iteration Number
1.... 0(1.1) -+-0(1. 2) ....... 0(2.1) -8-0(2. 2) 1
Figure 6.2: Graphical display of iterates of the Euler method for a clas-
sical spatial price example in quantity variables
The Euler method was initialized with QO=(O,O,o,of. The con-

vergence tolerance utilized was f = .001 with the convergence crite-
rion: IQi/l - Qijl ~ f, for all i,j. The sequence {aT} was set to:
.1 x {I,!,!, 1, 1, 1,· .. }.
The algorithm converged in 7 iterations, and in
a negligible amount of CPU time, to the commodity shipment pattern:
Q* = (1.000,1.001,1.000, 1.oool.
It is easy to verify that the precise equilibrium solution is given by

all the commodity shipments being identically equal to 1. The iterates
generated by the Euler method for this example are given in Table 6.1.
A graphical depiction of the iterates is also provided in Figure 6.2.
Table 6.1: Iterates generated by the Euler method for a classical spatial
price example in quantity variables
Iteration T Qh Q12 Qh Q22

0 0.000 0.000 0.000 0.000
1 2.950 2.530 3.100 2.650
2 0.124 0.441 0.048 0.374
3 1.363 1.256 1.391 1.278
4 1.017 1.016 1.018 1.015
5 1.000 1.003 1.000 1.001
6 1.000 1.001 1.000 1.000
7 1.000 1.001 1.000 1.000
6.4.1.2 Massively Parallel Computation of Classical Problems
The motivation for the implementation of the Euler method on massively

parallel architectures stems from two aspects: first, the discrete time
adjustment process (6.36) is a parallel adjustment process, and, second,
spatial price equilibrium problems in practice are typically large-scale,
suggesting a "massively" parallel approach for timely computation.
The CM FORTRAN code for the implementation of the Euler method
for this model on the massively parallel architectures, the Thinking Ma-
chines CM-2 and CM-5, consisted of an input and setup routine and a
computation routine to implement the iterative step (6.36). The crucial
feature in the design of the program was the construction of the data
structures to take advantage of the data level parallelism and computa-
tion. Towards this end, we defined arrays G, Q, and H, each of dimension
m X n, to store the elements {gjj}, {Qij} at each iteration, and {hjj},
respectively. Further, we constructed m x n dimensional arrays R, S, and
T, with each element ofrow i containing {ri}, {Si} at the particular iter-
ation, and {ti}, respectively. Finally, we constructed m X n dimensional
arrays: -M, D, and q, with each element of column j containing {-mj},
{dj} at the specific iteration, and {qj}, respectively. In particular, the
arrays: R, S, T, -M, D, and q were constructed using the spread con-
struct, with Sand D being updated at each iteration from Q, by using
the sum construct either along the row elements of Q to obtain the up-
dated supplies, or down the column elements of Q to obtain the updated
demands. Also, we used an array QO to denote the values of {Qij} at

the preceding iteration, which was needed for convergence verification.
The iterative process was initialized with the vector of commodity
shipments, QO, set equal to zero. The convergence criterion utilized was:
IQi/1 - Qijl ~ €, with € = .001, for all i,j.
For completeness, we now present the computation section of the
code, using eM FORTRAN directly in order to highlight the features
useful in the implementation.
Do while (err .ge .. OOl)
1. QO(:,:)=Q(:,:)
2. temp (:,:)=Q(:,:)+a T *
(-M(:,:) * D(:,:) + q(:,:) - G(:,:) * Q(:,:) - H(:,:)
-R( :,: )*S( :,:)-T(:,:))
3. Q(:,:) = temp(:,:)
4. where(temp (:, :).It.O.) Q(:,:) = O.
5. err=maxval(abs(Q-QO))
6. update supplies and demands end do
Hence, from Step 2 it can be seen that element (i,j) of the array
"temp" contains at the r-th iteration the value of aT(pj(~) - Cij(QT) -
1ri(ST)) + Qij). Q is then updated by using a mask in Step 4, where its
(i,j)-th element is set to zero if the value of temp(iJ) is negative. What
is important to note is that all the Qij'S, for i = 1, ... ,mj j = 1, ... ,n,
are computed and updated simultaneously. Indeed, the matrices R, S,
T, - M, D, and q were specifically created to each be of dimensions m X n
since multiplication, which is denoted by *, must be conformable, that
is, the arrays multiplied together must be of identical dimensions, with
such multiplication taking place term by term.
Step 5 determines the maximum error for convergence verification
purposes. Step 6 refers to the fact that the supplies and demands also
need to be updated. In our large-scale computations of classical prob-
lems, the sequence {aT} that was used was: .1 X {1,!,!,!,!,!, ... }.
We solved 4 problems in this set, beginning with a classical spatial
price equilibrium problem with 100 supply markets and 100 demand
markets, and 10,000 variables or unknown commodity shipments, and
ending with a spatial price equilibrium problem with 400 supply markets
and 400 demand markets and 160,000 variables. The data (cf. (6.53),
(6.54), and (6.55)) were generated randomly and uniformly in the ranges:
Table 6.2: CM-2 times and CM-5 times for classical spatial price prob-
lems - Quantity formulation
CM-2 Time (sec.) CM-5 Time (sec.)

# of processors # of nodes
Example m n 8K 16K 32K 128 256
CSP100 100 100 23.07 17.54 -- 8.02 -
CSP200 200 200 88.68 77 .56 56.93 23.14
CSP300 300 300 275.22 178.37 125.15 62.57 53.15
CSP400 400 400 686.43 439.33 302.62 143.62 112.27
Ti E [3,10], ti E [10,25]' -mj E [-1, -5], qj E [150,650], 9ij E [1,15],

hij E [10,25]; for all i = 1, ... , m; j = 1, ... , n.
We solved each example (except for the first, which only had 10,000
variables) with on the CM-2 using 8K (8,192) processors, 16K (16,384)
processors, and, finally, 32K (32,768) processors. In addition, we solved
each example on the CM-5 using 128 nodes, and, if appropriate, 256
nodes. The CM (busy) times (without input/output times), which were
obtained by calling the cm-timer command, are reported in Table 6.2.
The first example, CSP100, required 2,283 iterations for convergence,
the second example, CSP200, 5,475 iterations for convergence, the third
example, CSP300, 10,956 iterations, and the fourth, CSP400, 18,318
iterations for convergence, irregardless of the number of processors used
in the computations. We also solved the identical problems serially on
the IBM ES/9000 by implementing the algorithm in FORTRAN at the
same convergence tolerance and under the same initial conditions as on
the CM-2 and the CM-5. For any given example, the same number
of iterations were obtained on the ES/9000 as had been obtained on
the CM-2 and the CM-5. For completeness, we present the CPU times
obtained for running the algorithm serially on the ES/9000. The first
example required 97.06 seconds, the second example, 935.38 seconds,
the third example, 3,735.86 seconds, and the fourth example, 11,549.84
seconds.
With the convergence tolerance € set to .001, the maximum error
at the computed equilibrium commodity shipment, with the maximum
error defined as: maxij l1l'i(Si) + Cij(Qij) - pj(dj)l, with Qij > 0, was
.3469, over all the 4 examples.

We then proceeded to experiment with an alternative sequence {aT },
given by: .01 X {1,!,!,~,~,~, ... }. We solved the same examples as in
Table 6.2 using 256 nodes of the CM-5. CSP100 required only 7.43 sec-
onds and 2,147 iterations. CSP200 required only 8.26 seconds and 1,955
iterations. CSP300 required 8.04 seconds and 1,655 iterations, whereas
CSP400 required 10.11 seconds and also 1,655 iterations. Although this
sequence was more efficient in terms of CPU time, the maximum error
in this case over all 4 examples was 3.56. In practice, hence, one may
need to experiment with alternative sequences {aT} in order to obtain
the desired combination of efficiency and accuracy.
Observe that, although the Euler method requires many iterations
for convergence, each iteration is computationally inexpensive, because
of its simplicity, especially when at a given iteration all the market pair
commodity shipments are updated simultaneously, as can be realized on
a (massively) parallel architecture.
6.4.2 Computation of Asymmetric and Nonlinear Prob-

lems
We now present numerical results for the Euler method applied to spa-
tial price equilibrium problems in quantity variables that can no longer
be reformulated as optimization problems. We first present a small nu-
merical example and then discuss the implementation of the algorithm
on two distinct massively parallel architectures.
In particular, we considered problems with a linear, asymmetric sup-
ply price function for each supply market i, of the form
1I"i(S) = :~:::>ijSj + ti, (6.56)

j
and a linear asymmetric demand price function for each demand market
j, of the form
pj(d) = - L
mjkdk + qj. (6.57)
k
The unit transaction cost function associated with each market pair (i,j)
was of the form
(6.58)

We now present a small numerical example.
Example 6.4
Consider a spatial market problem consisting of two supply markets
and two demand markets. The supply price functions are given by:
+ Qll, CI2(Q12) = .02Q~2 + 2Q12 + 3.5,

Cll(Qll) = ·01Q~1
C21(Q21) = .03Q~1 + 3Q21 + 16.25, C22(Q22) = .02Q~2 + 2Q22 + 11.5.

Pled) = -2dl - 1.5d2 + 28.75, P2(d) = -4d2 - dl + 41.

The Euler method was initialized at QO=(O, 0, 0, O)T and converged
in 36 iterations and in a negligible amount of CPU time to:
Q* = (1.496,1.505,0.000, 1.987l.
The convergence tolerance was: £=.001, with the same convergence
criterion as used for the classical examples. The sequence {aT} was set
to: .5 x {1,!,!, 1, 1, 1, ... }.
The iterates generated by the Euler method
are given in Table 6.3 and depicted graphically in Figure 6.3.
The maximum error in the computed solution, when the maximum
error is, again, defined as: max(i,j) l1ri + Cij - pjl, for Qij > 0, was .012.
6.4.2.2 Massively Parallel Computation of Large-Scale Asym-

metric Examples
We now describe the implementation of the Euler method for the solu-
tion of large-scale asymmetric and nonlinear spatial price examples in
quantity variables. The CM FORTRAN code for the implementation
of the Euler method for the asymmetric model consisted of an input
and setup routine and a computation routine to implement the iterative
step (6.36). We retained the arrays: G, Q, and H as defined in the im-
plementation in Section 6.4.1.2. The matrix of supply price coefficients
Table 6.3: Iterates generated by the Euler method for an asymmetric

spatial price example in quantity variables
Iteration T Ql1 Q12 Q~l Q~2

0 0.000 0.000 0.000 0.000
1 13.375 17.750 5.500 14.000
2 0.000 0.000 0.000 0.000
3 6.688 8.875 2.750 7.000
4 0.000 0.000 0.000 0.000
5 4.458 5.917 1.833 4.667
6 0.000 0.000 0.000 0.000
7 3.344 4.438 1.375 3.500
8 0.000 0.000 0.000 0.000
9 3.344 4.438 1.375 3.500
10 0.000 0.000 0.000 0.000
11 2.675 3.550 1.100 2.800
12 0.000 0.000 0.000 0.393
13 2.577 3.353 0.962 2.878
14 0.000 0.014 0.000 0.582
15 2.520 3.258 0.892 2.908
16 0.471 0.592 0.000 1.047
17 1.847 2.335 0.326 2.311
18 1.014 1.203 0.000 1.558
19 1.590 1.900 0.000 2.086
20 1.293 1.446 0.000 1.810
21 1.496 1.671 0.000 2.002
22 1.417 1.533 0.000 1.929
23 1.460 1.565 0.000 1.966
24 1.458 1.540 0.000 1.961
25 1.469 1.537 0.000 1.970
26 1.473 1.529 0.000 1.973
27 1.479 1.524 0.000 1.976
28 1.482 1.520 0.000 1.979
29 1.485 1.517 0.000 1.980
30 1.488 1.514 0.000 1.982
31 1.490 1.512 0.000 1.983
32 1.491 1.510 0.000 1.984
33 1.493 1.508 0.000 1.985
34 1.494 1.507 0.000 1.986
35 1.495 1.506 0.000 1.987
36 1.496 1.505 0.000 1.987
18o=------------------------------------~
16
14
'"
~ 12
E
0-
~ 10
>-
;g 8
o
~
o
6
u
4
6 12 18 24 30 36
Iteration Number
1---0(1.1) -+-0(1. 2) -*-0(2.1) -8-0(2. 2) I

Figure 6.3: Graphical display of iterates of the Euler method for an
asymmetric spatial price example in quantity variables
{Tij} was stored in an m X m array SC, and the matrix of demand price
coefficients {-mjk} was stored in an n X n array DC. We also intro-
duced additional arrays SP and DP to denote, respectively, the supply
prices and the demand prices at a given iteration, where the i-th row of
SP consisted of the identical elements {1l"i} and the j-th column of DP
consisted of the identical elements {Pj}. To compute the supply prices,
we used the spread command to spread the supplies and then multi-
plied the resulting matrix with the SC matrix. We subsequently used
the sum command to add the elements of each row. Finally, this vector
was added to the vector containing the fixed supply price terms {td (cf.
(6.56)). The results was then spread to create the supply prices SP at
the particular iteration. The demand prices were obtained in an analo-
gous fashion. In regards to the transaction cost functions, an additional
array G2 was introduced to store the coefficients {Pij}.
As in the case of the classical model, the Euler method was initialized
with the vector of commodity shipments, QD, set to zero. The same
convergence tolerance and criterion were used as previously.
For the interested reader, we now present the critical steps in the CM
FORTRAN computation section.
Table 6.4: CM-2 times and CM-5 times for asymmetric spatial price
problems - Quantity formulation
CM-2 Times (sec.) CM-5 Times (sec.)

ASPI00 100 100 60.87 46.16 -- 19.43 -
ASP200 200 200 128.31 118.48 85.99 35.58

ASP300 300 300 324.88 211.32 149.98 70.38 61.17
ASP400 400 400 658.9 425.18 295.62 129.85 106.95
Do while (err.ge .. OO1)

1. QO(:,:)=Q(:,:)
2. construct SP and DP
3. temp(:,:)=Q(:,:)+a T *
(DP - G2(:,:) * Q(:,:) * Q(:,:) - G(:,:) * Q(:,:) - H(:,:) - SP)
4. Q(:,:)=temp(:,:)
5. where(temp(:,:).lt.O.) Q(:,:)=O.
7. update supplies and demands
end do
We solved 4 problems in this set, of the same dimensions as in Sec-
tion 6.4.1.2. The data (cf. (6.56), (6.57), and (6.58)) were generated
randomly and uniformly in the ranges: rii E [10,30], ti E [10, 100],
-mjj E [-5,-55], qj E [50,5000], {3ij E [.05,.55], gij E [2,60]' and
hij E [5,50], for all i = 1, ... , mj j = 1, ... , n. The off-diagonal terms
in the supply and demand price functions were generated to ensure
strict diagonal dominance, and, hence, a unique solution. Each asym-
metric function had five terms. The sequence {aT} that was used was:
.01 X {1,!,!,~,~,~, ...}.
We used 8K, 16K, and 32K processors of the CM-2 and 128 nodes
and 256 nodes of the CM-5. The numerical results are reported in Table
6.4.
The first example in this set, ASPI00, required 3,162 iterations for
convergence, the second example, ASP200, required 4,374 iterations, the
third example, ASP300, 7,169 iterations, and the fourth, ASP400, 9,873
iterations. The same problems were solved on the IBM ES/9000 at the
same convergence tolerance and with the same initial conditions, yielding
the same number of iterations as had been obtained on the CM-2 and
the CM-5. The first example in this set required 129.77 seconds on the
ES/9000, the second example required 767.57 CPU seconds, the third
example, 2,931.18 seconds, and the fourth example, 7,959.43 seconds.
6.4.3 Discussion
As can be seen from the above numerical results, the massively parallel
implementation of the Euler method on the CM-2 and the CM-5 clearly
outperformed the serial implementation on the IBM ES/9000. In fact,
in all cases, the times on only 8K processors were lower than those ob-
tained for the serial implementation. When 32K processors of the CM-2
were used, then at least an order of magnitude in speedup, as compared
to the IBM ES/9000 times, was realized for problems solved on these
architectures.
As one would expect, the CPU times on the CM-5 were the lowest,
with the 90,000 variable problems requiring only about a minute of CPU
time using 256 nodes of the CM-5, and the 160,000 variable problems
requiring less than 2 minutes of CPU time.
We did not report the CPU times on a particular configuration when
there was only a minimal reduction or no change relative to the next
smaller configuration. In other words, the addition of more processors
in such cases yielded no improvement in computational speed. Further
discussion of such parallel processing issues can be found in Nagurney
(1995). Further efficiencies may be realized in the future by selecting
alternative {aT} in a more "optimal" fashion after additional numerical
analysis.
Finally, we'd like to emphasize the simplicity of the implementation
of the proposed algorithm on both the serial and parallel architectures.
Indeed, at each step, the problem was decomposed into subproblems,
each of which possessed a closed form solution using a simple formula.
6.5 The Price and Quantity Model

In this section we review the price formulation of the spatial equilib-
rium problem described in Nagurney (1993) and introduce its projected
dynamical system representation.
6.5. THE PRICE AND QUANTITY MODEL 165
6.5.1 The Variational Inequality Formulation

Again, we consider m supply markets and n demand markets involved,
respectively, in the production and consumption of a commodity. Denote
a typical supply market by i and a typical demand market by j. Let Si
denote the supply of the commodity associated with supply market i and
let 1ri denote the supply price of the commodity associated with supply
market i. Let dj denote the demand associated with demand market j
and let Pj denote the demand price associated with demand market j.
Let Qij denote the nonnegative commodity shipment between the supply
and demand market pair (i, j) and let Cij denote the nonnegative unit
transaction cost associated with trading the commodity between (i,j).
Assume that the transaction cost includes the cost of transportation.
Consider now the situation where the supplies at the supply markets,
denoted by the row vector S may, in general, depend upon the column
vector of supply prices 1r, that is,
S=S(1r). (6.59)
Similarly, assume that the demands at the demand markets, denoted

by the row vector d, may, in general, depend upon the column vector of
demand prices p, that is,
d = d(p). (6.60)
The unit transaction costs, in turn, grouped into the row vector c,
may, in general, depend upon the column vector of commodity shipments
Q, that is,
C = c(Q). (6.61)
The spatial equilibrium conditions, assuming perfect competition

take, d. Samuelson (1952) and Takayama and Judge (1971), the fol-
lowing form: For all pairs of supply and demand markets (i,j) : i =
1, ... ,mjj = 1, ... ,n:
ifQ'!'·>O
i
1r +Ci j (Q*){ =Pj,
? Pj,
IJ
ifQ'!'·=O
(6.62)
'J '
where
if 1ri > 0
(6.63)
if 1ri = 0,
and
if pj > 0
(6.64)
if pj = O.
The equilibrium condition (6.62) states that if there is trade between

a market pair (i,j), then the supply price at supply market i plus the
transaction cost between the pair of markets must be equal to the de-
mand price at demand market j in equilibrium; if the supply price plus
the transaction cost exceeds the demand price, then there will be no
shipment between the supply and demand market pair.
Conditions (6.63) and (6.64) allow for the possibility that if the prices
are zero, then one may have excess supply and/or excess demand at the
respective market(s). If the prices are positive, then the markets will
clear.
Recall that in the quantity model, in contrast, it is assumed that the
supply price functions at the supply markets are given, and these, in
turn, may depend upon, in general, the supplies at all the markets, that
is,
1f' = 1f'(s). (6.65)
Similarly, in that model, it is assumed that the demand price functions
are also given and may, in general, depend upon the demands at all the
demand markets, that is,
p = p(d). (6.66)
The unit transaction costs remain as in (6.61).
In the quantity model, in contrast, it is also assumed that the follow-
ing conservation of flow equations hold for all supply markets i:
n
Si = LQij, (6.67)
j=l
and for all demand markets j:

m
dj=LQij. (6.68)
i=l
Hence, within the quantity model framework it is (implicitly) as-

sumed that the markets always clear, due to the conservation of flow
constraints. This market-clearing assumption yields dynamics and an
6.5. THE PRICE AND QUANTITY MODEL 167
underlying tatonnement or adjustment process that is entirely distinct

from those underlying the price model, as we shall later show.
Equilibrium conditions (6.62) must also be satisfied in the quantity
model, with the substitution of 1I"i(S*) for 11"* and pj(d*) for Pj, since the
prices are now functions rather than variables.
The variational inequality formulation of conditions (6.62), (6.63),
and (6.64) governing the price model is now given (for a proof, see Nagur-
ney (1993)).
The vector x* == (Q*,1I"*,p*) E K, where K == {x = (Q,1I",p)IQ E
R+ ,1I" E R+, PERt-} is an equilibrium shipment and price vector if
n
and only if it satisfies the variational inequality:
(F(x*),x - x*) ~ 0, \/x E K, (6.69)
where F : K t---+ Rmn+m+n is the function defined by the row vector
F(x) = (T(x),S(x),D(x)), (6.70)
and T : R+n+m+n t---+ Rmn, S : R+n+m t---+ Rm, and D : R+n+n t---+ Rn
are defined by:
Tij = 1I"i + Cij(Q) - Pj, Si = Si(1I") - L Qij, Dj =L Qij - dip)·

j
(6.71)

We now present the projected dynamical system model of the spatial
price problem in price and quantity variables. In view of variational
inequality (6.69) governing the price model, with the vector function F
defined by (6.70) and (6.71), we may write the dynamical system as:
( ~)
11" = II (( Q)
11" , (-T(Q,1I"'P)))
-S(Q,1I") (6.72)
P P -D(Q,p)
We now discuss this model. If all the variables x( t) are in KO, the
interior of K, that is, all the commodity shipments at time t, Q(t), are
positive, and all the supply prices 1I'(t) and demand prices pet) are also
positive, then the evolution of the solution is directly given in terms
of F : x = -F(x). Equivalently, here we have that Q = -T(Q,1I',p),
ir = -S(Q, 11'), and p = -D(Q,p). In other words, the commodity
shipment between each pair of markets (i, j) responds to the price signal,
-Tij, where recall that, cf. (6.71), -Tij = Pj - Cij(Q) - 1I'i. The supply
price at a supply market i, in turn, responds to the undersupply -Si =
Lj Qij - SiC 11'), and the demand price at a demand market j to the unmet
demand - D j = dip) - Li Qij. Hence, in this model there are both price
and quantity signals. Moreover, the markets need not clear before the
equilibrium conditions are met, or, equivalently, a stationary point is
reached.
More explicitly, if the demand price at a demand market exceeds

the supply price plus the unit transaction cost associated with shipping
the commodity between a pair of supply and demand markets, then the
commodity shipment between this pair of markets will increase. On the
other hand, if the supply price plus unit transaction cost exceeds the
demand price, then the commodity shipment between the pair of supply
and demand markets will decrease. If the supply at a supply market
exceeds (is exceeded by) the commodity shipments out of the market,
then the supply price will decrease (increase). In contrast, if the demand
at a demand market exceeds (is exceeded by) the commodity shipments
into the market, then the demand price will increase (decrease).
However, if at a boundary point x E 8K, the vector field -F points

"out" of K, the right-hand side of (6.72) becomes the projection of F
onto 8K. In other words, ifthe commodity shipments, and/or the supply
prices, and/or the demand prices are driven to be negative, then the
projection ensures that the commodity shipments and the prices will be
nonnegative, by setting the values equal to zero. The solution to (6.72)
then evolves along a "section" of the boundary of K. At a later time,
the solution may re-enter the interior of the constraint set K, or it may
enter a lower dimensional part of the boundary of K, with, ultimately,
the spatial price equilibrium conditions (6.62), (6.63), and (6.64) being
reached at a stationary point.

We now highlight the simplicity of the Euler scheme in the context of
the price formulation of the spatial equilibrium model. Note that here,
as in the quantity model, the feasible set K is, again, the nonnegative
orthant, although of a higher dimension for a fixed number of supply and
demand market pairs. This characteristic yields subproblems induced by
the projection operator that can also be solved explicitly and in closed
form. Specifically, at each iteration T, one need only to compute for each
supply and demand market pair (i,j), the commodity shipment Qi/l as
follows:
Qi/l = max{O,ar(pj - Cij(Qr) - 7r[) + Qij}, (6.73)
for each supply market i, the supply price 7r[+! according to:
7r[+! = max{O,ar(LQij - Si(7r r » + 7ri}, (6.74)

j
and for each demand market j, the demand price pj+! according to:
(6.75)
Note that (6.73), (6.74), and (6.75) represent parallel adjustment pro-
cesses in that each of the mn market pair subproblems can be solved
simultaneously at each iteration to evaluate the new commodity ship-
ments, as can each of the m supply price problems and the n demand
price problems. Moreover, each such subproblem can be solved explicitly
in closed form.
This discrete time adjustment process is also economically meaningful
in that the commodity shipment between a pair of markets will increase
if the demand price exceeds the supply price plus the unit transaction
cost; it will decrease if the demand price is lower than the sum of the
supply price and the unit transaction cost associated with that shipment.
In regards to the updating of the supply prices, the supply price at a
market will decrease if the commodity shipments out of the market are
less than the supply of the commodity at that market at the level of
supply prices; the supply price will increase if the commodity shipments
exceed the supply of the commodity at the supply market. On the other
hand, the demand price at a demand market will increase if the demand
for the commodity at the level of demand prices exceeds the commodity
flow into the demand market; it will decrease if the demand is less than
the commodity shipments into the market.
Furthermore, it is easy to see from expression (6.73), that if QJj is
positive, and the supply price plus transaction cost is identically equal to
the demand price, then the commodity shipment will be left unchanged.
Similarly, if the supply price plus transaction cost exceeds the demand
price at an iteration T for a particular pair of markets i, j, and QJj = 0,
then there will also be no shipment of the commodity between markets
i and j at the subsequent iteration.
From (6.75) we can conclude that if 7ri is positive and the supply is
equal to the commodity shipments out of the market, then the supply
price will not change. Also, from (6.76) it follows that if Pj is positive
and the demand is equal to the commodity shipments into the market,
then the demand price at the market will not change.
We now interpret the conditions for convergence of the Euler-type
method in the case of the application under consideration here.
In a practical realization of a spatial equilibrium problem in price
and quantity variables, one can reasonably expect the following:
(i). At each supply market i, Si(7r) ~ L:j Qij, for sufficiently large 7ri.
(ii). At each demand market j, L:iQij ~ di(P), for sufficiently large Pi.
This condition can be interpreted as follows. The shipment to de-
mand market j will be abundant, attracted by the high demand price
Pi, and, hence, adequate for the demand di' which is relatively lower
because dj(p) is a decreasing function of Pj.
(iii). For any supply/demand pair (i,j) the transaction cost Cij(Q) is at
least of linear growth for a heavy shipment of Qij. That is, there exists
some"., > 0 such that Cij(Q) ~ ".,Qij, for sufficiently large Qij.
Mathematically, the above conditions can be expressed as:
Assumption 6.2
Assume that there exist constants Ms > 0, Md > 0, Me > 0, and an
"., > 0, such that
Si(7r) > I: Qij, if 7ri> Ms (6.76)

j
(6.77)
(6.78)
and any i and j.
We now present the following results.
Lemma 6.1
Under the Assumption 2.1 and the Assumption 6.2, any sequence
{1I"T,QT,pT} generated by the Euler scheme as in (6.73), (6.74), and
(6.75), is bounded.
Proof:
Since aT ---t 0, as T ---t 00, there exists an N > 0, such that
for T ~ N.
(6.79)
Select an M large enough, where
M = max:{ max:{Ms, ~Mc,Md},

max:{;L,7]2jL,q.,I::; i::; m;l::;j::; n;l::; T::; N}},
so that
11"[ < 2M, i = 1, ... ,m; \IT::; N, (6.80)
pj < 2M, j = 1, ... ,n; \IT::; N, (6.81)
QTj < 41]-lM, i = 1, ... ,m;j = 1, ... ,n; \IT ~ N, (6.82)

and
Si(1I")-L:Qij>0, if 1I"i>M, (6.83)
j
(6.84)
Cij(Q) > 7]Qij, if Qij > 27]-1 M. (6.85)

We claim now that
11"[ ::; 2M, pj::; 2M, Qrj::; 47]-1 M, \li,j, \IT ~ O. (6.86)
Since the first N items are guaranteed by (6.80), (6.81), and (6.82),
we only need to show (6.86) for T = N + I; I = 1,2, .... However, this
can be done inductively.
Suppose (6.86) is true for T = N + lj I ~ o. Consider 7rf'+1+1 in two

distinct cases.
Case (i). If 7rf'+1 > M, then from (6.83) it follows that Si(7r N+1) -
Lj Q~+I > O. Hence, from (6.83) we conclude that
( 6.87)
Case (ii). If 7rf'+1 :s; M, then from (6.74) we have that
7rf'+1+1 :s; 7rf'+1 + aN+t1 L:Q~+I - Si(7r N+1)1

j
:s; 7rf'+1 + aN+1 [~(~ Q~+I - Si(7r N+1))2 + ~(~ Q~+I - dj(pN+I)?
, 3 3 ,
+ ~(7rf'+1 + Cij(QN+I) - pf+I)2]

2
= 7rf'+1 + aN+t1IF(x N+1)11, (6.88)
'3
where x N+1 = (7r N+1, QN+I, pN+I) E R++ mn +n , and F is as in (6.70) and
(6.71).
Notice that from (6.79), it follows that
aN+1 < [2(1 + Bh/4(m + n) + 16mm7-2] -1 (6.89)
and that, under the linear growth condition of Assumption 2.1,
where the last inequality is from the inductive assumption: 7rf'+1 :s; 2M,
P3lY+ 1 <
-
2M "Q~+I
3
<
-
4'1'1-
.,
1 M.
Combining now (6.88), (6.89), and (6.90), we obtain
+ [2(1 + B)J4(m + n) + 16mn'T/-2] -1 (1 + B)M J4(m + n) + 16mn'T/2

1 3
= 7r-!,,+1
,
+ -M
2
< -M.
2
(6.91)
Consequently, (6.87) and (6.91) show that
7r[,,+I+I :s; 2M, Vi. (6.92)
In the same manner, we obtain
PJ,y+l+1 < 2M ,VJ.

-
\..I • (6.93)
We now establish Q~+l+1 :s; 41]-1 M as follows:

Case (i). If Q~+l > 21]-1 M, then from (6.85) and the inductive as-
sumption:
c''J.(QN+l) > 'I1Q-!,:+1
./ 'J
> 2M -> p,y+l
J . (6.94)
Hence,
PJ,y+l _ c'J.. (QN+l) _ 7r!"l+1

,- J
< p,y+l _ c'J.. (QN+l) < O.
-
From (6.73) it then follows that
-!,:+I+I <
Q 'J -
Q-!,:+l
tJ
< 4'11-
- ./
1 M. (6.95)
Case (ii). If Q~+l :s; 21]-1 M, then from (6.73) it follows that
-!,:+1+1 < Q-!,:+l

Q 'J - '3
+ aN +1 Ip,y+l
3
_ c .. (QN+l) _ 7r!"l+11
'3 I
(6.96)
where x N+1 = (7r N+1,QN+l,pN+l) and F is as in (6.70) and (6.71).
Notice now that from (6.79) one has that
aN+l < [1](1 + Bh/4(m + n) + 16mn1]-2] -1 (6.97)
Combining (6.90), (6.91), and (6.92), one obtains
Q-!,:+I+I < Q-!,:+l

'J - 'J
+ [1](1 + Bh/4(m + n) + 16mn1]-2] -1 (1+B)M J4(m + n) + 16mn1]-2

= Q~+l + 1]-1 M :s; 31]-1 M. (6.98)
So (6.95) and (6.98) together imply
~+I+1
Q IJ < 4'11-1M ,
_./
\.I';.
Vo,]. (6.99)
Indeed, (6.80), (6.81), and (6.82) mean that one can start this inductive
deduction from 1 = 0 and, therefore, the proof of the lemma is complete .
• Moreover, the following proposition shows that Assumption 6.2 alone
guarantees the existence of an equilibrium solution to the price formula-
tion of the spatial problem.
Proposition 6.2
Suppose that Assumption 6.2 holds for a price formulation of the
spatial equilibrium problem. Then there exists at least one equilibrium
point.
Proof:
Let 1J < 1 in Assumption 6.2 and
be a closed rectangular box in R++mn+n.

Consider the variational inequality problem VIM restricted to BM,
that is, to the problem: Determine x* E BM such that
(F(x*),x - x*) ~ 0, 'Vx E BM, (6.100)
where F( x) is as in (6.70) and (6.71) of Theorem 1. Since F(·) is contin-

uous and BM is compact, from the results in Hartman and Stampacchia
(1966), VIM admits at least one solution x* = (1f*,Q*,p*) E BM.
If now for some i, 1fi = 2Ms, then by Assumption 6.2
Si(1f*) - L Qij > o. (6.101)

j
However, this is impossible, because y = (1r,Q*,p*) E BM defined as

for I = 1, ... ,m, will violate (6.99) by yielding
Therefore,
(6.103)
Similarly,
pj < 2Md, Vj. (6.104)
If for some (i,j), Qij = TJ-l(Me + 2Md), then Qij > Me, so from As-
sumption 6.2, one gets
(6.105)
Hence, by (6.104)
(6.106)
But, again, this will present a contradiction, as follows.

Define now z = (if*,Q,p*) E EM as
Q* if (l,k) f (i,j)
Qlk ={ 2 ij' l·f (I ,k)= (i,j ) .
lQUt;
Then from (6.104) it follows that
- 1-
(F(x*), z - x*) = (if; + Cij(Q*) - pj)( -2 Q;j)
= (if; + Cij(Q*) - pj)( _~TJ-l(Me + 2Md)) < 0, (6.107)
which contradicts (6.100). Hence,
(6.108)
Now for any x = (rr,Q,p) E R++ mn +n , in view of (6.103), (6.104), and

(6.105), there is a small enough () > 0, such that
Xe = (}(rr,Q,p) + (1- (})(if*,Q*,p*) E EM.

Hence, from (6.100) we conclude that
(F(x*), Xu - x*) ;::: O. (6.109)
But
(F(x*), Xu - x*) = (F(x*),8(x - x*)) = 8(F(x*), X - x*), (6.110)
and from (6.109) it follows that
(F(x*),x - x*);::: 0, 'TIx E Rm +mn+n , (6.111)
that is, x* solves variational inequality (6.69), and according to Theorem

6.11, it is an equilibrium shipment and price pattern .•
Smith (1984) imposed an assumption similar to Assumption 6.2, in
the context of a distinct price model. The assumption therein was shown
to satisfy the so-called Exceptional Sequence Condition, a sufficient con-
dition for a solution to the corresponding complementarity problem for-
mulation of that spatial price equilibrium problem. We note that As-
sumption 6.2 also satisfies the Exceptional Sequence Condition proposed
in that paper and, therefore, guarantees the existence of the spatial price
equilibrium. However, the proof of Proposition 6.2 is a direct one and
does not follow that line.
We now state the following result, which is standard in the theory of
variational inequalities (cf. Chapter 2).
Proposition 6.3
Suppose that F is strictly monotone at any equilibrium point of the
variational inequality problem (6.69), then the problem has at most one
equilibrium point.
As established in Dafermos and McKelvey (1992), the variational in-
equality governing this spatial price equilibrium model is partitionable
and, hence, the qualitative properties of the model can be studied by
studying the partitions themselves. In other words, the strict mono-
tonicity of F here is upheld if the supply, demand, and transaction cost
functions are each strictly monotone.
In Nagurney (1993) a distinct set of sufficient conditions is provided
for this price model.
We now state the convergence theorem for the Euler-type method,
using the preceding results.
Theorem 6.12
In the price formulation of the spatial equilibrium problem, suppose
that F as defined in (6.70) and (6.71) satisfies Assumption 6.2 and is
strictly monotone at any equilibrium price and shipment vector. Fur-
thermore, assume that F either satisfies Assumption 2.1 or is uniformly
Lipschitz continuous. Then there exists a unique equilibrium price and
shipment vector x* and for any initial condition xO E R~+mn+n the
sequence generated by the Euler method
(6.112)
where
(6.113)
and
(6.114)
converges to x*.
Proof:
First notice that the existence and uniqueness of the equilibrium
vector x* are already guaranteed, respectively, by Proposition 6.2 and
Proposition 6.3. Hence, we only need to establish here the convergence
result. In view of Theorem 4.2, this can be accomplished by verifying
that Assumption 4.1 is satisfied here.
While Assumption 4.1.1 has been stated as the condition of the the-
orem, Assumption 4.1.2 holds because P r = F in the Euler-type method
and F is continuous. Lemma 6.1, in turn, shows that Assumption 2.1
and Assumption 6.2 together imply Assumption 4.1.4, the boundedness
of the sequence. What is, hence, left to be proved here is that Assump-
tions 4.1.3 and 4.1.5 are satisfied.
Applying Theorem 3.6, x* is a strictly monotone attractor and, hence,
is the w-limit set of the projected dynamical system (6.72), i.e.,
w(K) = {x*}.
Therefore Assumption 4.1.3 is verified.
The verification of Assumption 4.1.5 is now direct. For any compact
set K1, let Rl be sufficiently large so that K1 C BRl(X*) n R~+mn+n.
Since D(t) is montonically decreasing,
Ilx(t) - x*11 ~ IIx(O) - x*ll, "It. (6.115)

Therefore,
The set K2 in Assumption 4.1.5, which is compact, can, therefore, be se-

lected as BR1(X*)nR++mn+n, where Rl = max:l:EKl IIx-x*lI. Therefore,
the solution is stable.
The proof of the theorem is complete. •

In this section we present numerical results for the Euler method for
the computation of both small-scale and large-scale examples of spatial
price equilibrium problems in price and quantity variables. In Section
6.7.1 we discuss the computation of classical examples characterized by
linear supply, demand, and unit transaction cost functions, whereas in
Section 6.7.2 we focus on problems where the analogous functions can
be nonlinear or asymmetric.
In this section we also describe the massively parallel implementation
of the Euler method for the computation of the price formulation of
spatial equilibrium problems, which takes on the explicit formulas given
by (6.73), (6.74), and (6.75), and present numerical results for large-scale
problems. We begin with a discussion of the implementation for spatial
price equilibrium problems with separable and linear supply, demand,
and transaction cost functions in Section 6.7.1.2, and then turn to a
discussion of the implementation for problems with both nonlinear and
asymmetric functions in Section 6.7.2.2. All the test problems used were
strictly monotone on the feasible set K. The strict monotonicity of F on
K is easier to verify than the strict monotonicity of F at the equilibrium
points, but the latter is a weaker condition and sufficient for Theorem
6.12.
The language used in the implementation on the Thinking Machine's
CM-2 and CM-5 architectures was CM FORTRAN. The IBM SP2 was
used for the serial computations.
6.7.1 Computation of Classical Problems

Recall that the "classical" spatial price equilibrium problem, dating to
Samuelson (1952) and Takayama and Judge (1971), assumes linear and
separable functions. We now present the supply and demand price func-
tions and their inverses.
In particular, we have that the supply price function at a supply
market i is of the form
which corresponds to the supply function
(6.116)
The demand price function at a demand market j is of the form
pj(dj) = -mjdj + qj,

which corresponds to the demand function
dj(pj) =
p'
_J_ + _J
q'
• (6.117)
-mj mj
The unit transaction cost function associated with shipping the com-
modity between supply and demand market pair (i,j) is identical in both
the price and quantity formulations and is of the form
(6.118)
with Ti,ti,mj,qj,9ij,h ij > 0, for all market pairs i,j.
We first present a small numerical example and then present numer-
ical results on large-scale examples, when the Euler method is imple-
mented on two distinct massively parallel architectures.

Example 6.5
Consider a spatial market consisting of two supply markets and two
demand markets. The supply functions are given by:
SI(1I"t) = 11"1 - 5, S2(1I"2) = 11"2 - 2.

The supply price functions, in turn, for this example correspond to:
Cl1(Ql1) = 1.5Ql1 + .5, CI2(QI2) = 2.2Q12 + .8,

C21(Q21) = Q21 + 1, C22(Q22) = .5Q22 + 1.5.
The demand functions are given by:
The demand price functions, in turn, for this example would correspond
to:
PI(d!) = -.15dl + 10, P2(d2) = -.ld2 + 10.
The Euler method was initialized with 11"0 = (O,Of, pO = (O,Of,
and QO = (O,O,o,of. The convergence tolerance f was set to .001 and
the criterion utilized was: 111"[+1 - 11"[1 ~ f, for all i, IQ[t l - QIjl ~ f,
for all i,j, and Ipj+1 - pjl ~ f, for all j. The sequence {aT} was set to:
1. X {1,!,!,~,~,~, ... }. The algorithm converged in 49 iterations, and
in a negligible amount of CPU time, to:
11"* = (6.519,5.153f,
Q* = (1.521,0.000,3.144,0.000f,
p* = (9.300,5.000f·
The generated iterates are reported in Tables 6.5 and 6.6 and dis-
played in graphical form in Figure 6.4.
Since the supply prices and demand prices were positive at equilib-
rium the analogous equilibrium conditions (6.63) and (6.64) held with
"equality", precisely in the case of the demand markets and at a maxi-
mum deviation of .009 for the supply markets. The maximum error was
.003 for the equilibrium condition (6.62).
Table 6.5: Iterates generated by the Euler method for a classical spatial
price example in price and quantity variables
T 71"1 71"2 Ql1 Q12 Q21 Q22 PI P2

0 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
1 5.000 2.000 0.000 0.000 0.000 0.000 66.67 50.00
2 5.000 2.000 30.58 22.10 31.83 23.25 0.000 0.000
3 31.34 29.54 4.90 0.000 14.42 15.69 2.13 2.33
4 24.19 30.40 0.000 0.000 0.14 3.50 13.19 6.012
5 17.80 22.14 0.000 0.000 0.000 0.000 6.058 1.471
6 13.53 15.43 0.000 0.000 0.000 0.000 14.82 13.24
7 11.40 12.07 0.197 0.000 0.000 0.000 6.788 0.000
8 9.848 9.554 0.000 0.000 0.000 0.000 12.09 12.50
9 8.636 7.665 0.436 0.463 0.385 0.362 8.605 0.000
10 7.952 6.436 0.140 0.000 0.273 0.000 10.73 12.29
11 7.389 5.603 0.553 0.708 0.877 0.872 9.676 0.000
12 7.164 5.232 0.744 0.000 1.316 0.000 9.822 9.684
13 6.880 4.849 0.953 0.344 1.771 0.590 9.647 0.316
14 6.763 4.751 1.120 0.000 2.176 0.000 9.573 9.497
15 6.635 4.636 1.246 0.387 2.505 0.649 9.483 0.503
16 6.634 4.723 1.326 0.000 2.729 0.000 9.432 7.825
17 6.583 4.724 1.378 0.065 2.892 0.267 9.387 3.116
18 6.560 4.796 1.417 0.000 3.021 0.000 9.356 6.200
19 6.536 4.834 1.446 0.000 3.111 0.000 9.332 4.200
20 6.521 4.880 1.467 0.000 3.175 0.000 9.315 5.533
21 6.512 4.929 1.483 0.000 3.219 0.000 9.302 4.644
22 6.508 4.970 1.492 0.000 3.241 0.000 9.295 5.152
23 6.505 5.009 1.499 0.000 3.253 0.000 9.290 4.935
24 6.505 5.044 1.504 0.000 3.257 0.000 9.287 5.028
25 6.505 5.074 1.508 0.000 3.255 0.000 9.286 4.988
26 6.505 5.100 1.511 0.000 3.249 0.000 9.286 5.005
27 6.506 5.121 1.513 0.000 3.240 0.000 9.286 4.998
28 6.507 5.138 1.514 0.000 3.229 0.000 9.287 5.001
29 6.508 5.150 1.516 0.000 3.219 0.000 9.288 5.000
30 6.509 5.158 1.516 0.000 3.209 0.000 9.290 5.000
31 6.510 5.165 1.517 0.000 3.199 0.000 9.291 5.000
32 6.511 5.169 1.518 0.000 3.190 0.000 9.292 5.000
33 6.512 5.172 1.518 0.000 3.182 0.000 9.294 5.000
34 6.512 5.173 1.519 0.000 3.174 0.000 9.295 5.000
35 6.513 5.173 1.519 0.000 3.168 0.000 9.296 5.000
36 6.514 5.172 1.520 0.000 3.162 0.000 9.297 5.000
37 6.515 5.171 1.520 0.000 3.158 0.000 9.297 5.000
38 6.515 5.170 1.520 0.000 3.154 0.000 9.298 5.000
39 6.516 5.168 1.521 0.000 3.152 0.000 9.299 5.000
Table 6.6: Continuation of iterates for a classical spatial price example
T 7r7"
1
7r7"
2 QIl Qh Qh Q22 pI P2
40 6.516 5.166 1.521 0.000 3.149 0.000 2.299 5.000
41 6.517 5.164 1.521 0.000 3.147 0.000 9.299 5.000
42 6.517 5.162 1.521 0.000 3.146 0.000 9.300 5.000
43 6.518 5.161 1.521 0.000 3.145 0.000 9.300 5.000
44 6.518 5.159 1.521 0.000 3.144 0.000 9.300 5.000
45 6.519 5.157 1.521 0.000 3.144 0.000 9.300 5.000
46 6.519 5.156 1.521 0.000 3.144 0.000 9.300 5.000
47 6.519 5.155 1.521 0.000 3.144 0.000 9.300 5.000
48 6.519 5.154 1.521 0.000 3.144 0.000 9.300 5.000
49 6.519 5.153 1.521 0.000 3.144 0.000 9.300 5.000
6.7.1.2 Massively Parallel Computation of Large-Scale Clas-

sical Spatial Price Examples
The CM FO RTRAN code for the implementation of the Euler method for
the classical model in price and quantity variables consisted of an input
and setup routine and a computation routine to implement the iterative
steps (6.73), (6.74), and (6.75), in which the commodity shipments, and
supply and demand market prices are updated. The crucial feature in
the design of the program, again, was the construction of the data struc-
tures to take advantage of the data level parallelism and computation.
Towards this end, we defined arrays G, Q, and H, each of dimension
m X n, to store the elements {9ij}, {Qij} at each iteration, and {hij},
respectively. Further, we constructed m X n dimensional arrays SPRICE
and DPRICE, with each element of row i of SPRICE containing 7ri, and
with each element of column j of DPRICE containing Pj, at the partic-
ular iteration. The arrays SPR and DPR stored the new values of 7r and
*
p, respectively, at a particular iteration.
We constructed m dimensional arrays: -h and -h to store (d. (6.116»
the t and coefficients in the supply functions. We constructed n
dimensional arrays: _~ and if to store (d. (6.117» the _~j and ~
demand coefficients. Also, we used arrays QO, SPRO, and DPRO to
denote the values of {Qij}, {7ri}, and {Pj}, respectively, at the preceding
iteration, which were needed for convergence verification.
35~--------------------------------------------,
30
.!"c 25
OJ
E
CL
:r: 20
III
>-
~
'5 15 b
o
E
E
o 10
u
Iteration Number
1---0(1.1) -+-0(1. 2) --?+E--O(2. I) -8-0(2.2) I

70~--------------------------------------------,
60
50
(/l
OJ
.g 40
(L
"'iii
~ 30
o
:::;
20
10
5 10 15 20 25 30 35 40 45 ~o
Iteration Number
--- Supply Price(l) -+- Supply Price(2) --?+E-- Demand Pricer I) -8- Demand Price(2)
Figure 6.4: Graphical display of iterates of the Euler method for a clas-
sical spatial price example in price and quantity variables
The iterative process was initialized with the vectors of commodity

shipments, supply prices, and demand prices (QO, 'lr0, pO) set equal to
zero. The convergence tolerance utilized was: IQi/l - Qijl ~ €, 1'Ir[+! -
'lril ~ €, and Ipj+! - Pjl ~ €, with € = .001, for all i,j. Later, we report,
for all numerical examples, the resulting maximum deviations from the
equilibrium conditions (6.62), (6.63), and (6.64) at convergence, with
this criterion.
For completeness, we now present the computation section of the
code, using CM FORTRAN directly in order to highlight the features
useful in the implementation.
eM FORTRAN Implementation
Do while (err.ge .. OO1.or. err1.ge .. 001.or.err2.ge .. 00l)
1. QO(:,:)=Q(:,:)
SPRO(:)=SPR(:)
DPRO(:)=DPR(:)
2. SPRICE( :,: )=spread(SPRO(: ),dim=2,ncopies=n)
DPRICE(:,:)=spread(DPRO(:),dim=l,ncopies=m)
3. temp(:,:)=QO(:,:)+aT *
(DPRICE( :,: )-G( :,: )*QO( :,: )-H( :,: )-SPRICE( :,:))
4. Q(:, :)=temp(:,:)
5. where(temp (:, :).It.O.) Q(:,:) = O.
6. stemp(:)=sum(QO(:,:),2)
7. temp1(:)=SPRO(:)+a T *
stemp(:)- ~(: )*SPRO(:)+ -h(:))
8. where(templ (:).It.O.) SPR(:)=O.
9. dtemp(:)=sum(QO(:,:),I)
10. temp2(:)=DPRO(:)+aT *
(-k (:
)*DPRO(:)+ k(: )-dtemp(:))
11. where (temp2(:).lt.0.)DPR(:)=0.
12. err=maxval( abs( Q-QO))
errl=maxval( abs(SPR-SPRO))
err2=maxval(abs(DPR-DPRO))
end do
Hence, from Step 3 it can be seen that element (i,j) of the array
"temp" contains at the r-th iteration the value of aT(pj - Cij(QT) -
'lrT) + Qij' Q is then updated by using a mask in Step 4, where its (i,j)-
th element is set to zero if the value of temp(iJ) is negative. What is
important to note is that all the Qij'S, for i = 1, ... , mj j = 1, ... , n,
Table 6.7: CM-2 times and CM-5 times for classical spatial price exam-
ples - Price formulation
CM-2 Time (sec.) CM-5 Time (sec.)

PCSP100 100 100 11.50 8.87 -- 3.62 -
PCSP200 200 200 21.97 19.42 14.52 5.89
PCSP300 300 300 37.46 24.69 17.73 8.10 6.96
PCSP400 400 400 60.80 39.26 25.52 12.38 9.54
are computed and updated simultaneously. Similarly, from Step 7 it

can be seen that the i-th element of the array temp1(:) contains at
the r-th iteration the value of aTO:=j Qij - Si(1I"T)) + 11"[, and from Step
10 that the j-th element of the array temp2(:) contains the value of
aT(dj(pT) - L,i Qij) + Pi- In our computations, the sequence {aT} that
was used was: 1.x{l,~,~,~,~,~, ... }. Step 12 determines the maximum
error for convergence purposes.
We solved 4 problems in this set (cf. Table 6.7), beginning with a
classical spatial price equilibrium problem with 100 supply markets and
100 demand markets, and 10,200 variables, consisting of 10,000 com-
modity shipment variables and 200 price variables, and ending with
a spatial price equilibrium problem with 400 supply markets and 400
demand markets and 160,000 commodity shipment variables and 800
price variables. The data (cf. (6.116), (6.117), and (6.118)) were gen-
erated randomly and uniformly in the ranges: Ti E [3,10], ti E [10,25],
-mj E [-1,-5], qj E [150,650]' gij E [1,15], hij E [10,25]; for all
i = 1, ... , m; j = 1, ... , n. These examples were precisely the "inverse"
problems of the classical examples reported in Table 6.2.
We solved each example on the CM-2 (except for the first, which
only had 10,200 variables) using 8K (8,192) processors, 16K (16,384)
processors, and, finally, 32K (32,768) processors. We also solved the
same examples on the CM-5, using 128 nodes and 256 nodes. We did
not use more nodes since there was substantially no improvement. The
CM (busy) times (without input/output times), which were obtained by
calling the em-timer command, are reported in Table 6.7.
The first example, PCSP100, required 1,054 iterations for conver-

gence, the second example, PCSP200, 1,308 iterations for convergence,
the third example, PCSP300, 1,461 iterations, and the fourth, PCSP400,
1,608 iterations, irregardless ofthe number of processors used in the com-
putations. We then solved the identical problems on the IBM ESj9000
by implementing the algorithm in FORTRAN at the same convergence
tolerance and under the same initial conditions as on the CM-2 and the
CM-5. For completeness, we present the CPU times obtained for running
the algorithm serially on the IBM ESj9000. The first example required
32.59 seconds, the second example, 164.58 seconds, the third example,
462.22 seconds, and the fourth example, 938.90 seconds.
We now discuss the deviations from the equilibrium conditions (6.62),
(6.63) and (6.64) for the above numerical examples, since the convergence
criterion utilized measured the closeness of successive iterates, rather
than the closeness to the equilibrium conditions themselves. In particu-
lar, we computed the following error measure e, where
and
We note that in all these examples, in the case that Qii = 0, for a
given market pair i,j, then the inequality in (6.62) was always satisfied.
Similarly, in the case that 1ri = 0 for a given supply market i, then the
inequality in (6.63) also always held. Finally, in the case that Pi > 0
for a given demand market j, then the inequality in (6.64) also always
held. In view of this, we now present the error e for each of the cl?-ssical
examples computed above, since this measure is appropriate.
For the first example in this set, PCSP100, the error e=.0455, for
the second example, PCSP200, the error e=.0502. For the third classi-
cal example, PCSP300, the error e=.0532, and for the fourth example,
PCSP400, the error e=.0560.
6.7.2 Computation of Nonlinear and Asymmetric Prob-

lems
We now discuss the implementation of the Euler method for more general
spatial price equilibrium problems in price and quantity variables. In
particular, we considered a linear, asymmetric supply function for each
supply market i, of the form
(6.119)
and a linear asymmetric demand function for each demand market j, of

the form
dj(p) = - L-Pk
k
1
mjk
q"
+ _3_.
mjj
(6.120)
The transaction cost function associated with each market pair (i,j) was
of the form
(6.121)

Example 6.6
Consider a spatial market problem in price and quantity variables
and two supply markets and two demand markets. The supply functions
are given by:
The transaction cost functions are given by:
cn(Qn) = .01Q~1 + Qn + .5, C12(Q12) = .02Q~2 + 2Q12 + 3.5,

C21(Q21) = .03Q~1 + 3Q21 + 16.25, C22(Q22) = .02Q~2 + Q22 + 11.5.
The demand functions are given by:
We initialized the algorithm with 11'0 = (O,Of, QO = (O,O,O,of,

and po = (0, Of. The convergence tolerance € was set to .001 and the
same criterion utilized as in the classical examples of this model. The

sequence {aT} was set to: 1. x {1,!,!,~,~,~, ... }.
The algorithm converged in 23 iterations, and in a negligible amount
of CPU time, to the solution:
11"* = (3.377, 1.458?,
Q* = (16.222,0.000,1.648, O.OOO?,
p* = (22.734,6.817?
The iterates generated by the Euler method are reported in Table

6.8 and displayed graphically in Figure 6.5. The maximum error in the
computed example, as defined in Section 6.7.1.2, was .0053.
6.7.2.2 Massively Parallel Computation of Large-Scale Spatial

Price Asymmetric Examples
The CM FORTRAN code for the implementation of the Euler method
for this more general model consisted of an input and setup routine and
a computation routine to implement the iterative steps (6.73), (6.74),
and (6.75). We retained the arrays: G, Q, and H as defined in the im-
plementation in Section 6.7.1. The matrix of supply coefficients {/.}
was stored in an m X m array iR' 'J
and the matrix of demand coefficients
{-mjk} was stored in an n X n array -itM' To compute the supply
function values, we used the spread command to spread the supplies
and then multiplied the resulting matrix with the JR matrix. We subse-
quently used the sum command to add the elements of each row. Finally,
this vector was added to the vector -k containing the fixed supply price
terms (cf. (6.119)). The demand prices were obtained in an analogous
fashion. In regards to the transaction cost functions, an additional array
G2 was introduced to store the coefficients {Bij}.
As in the case of the classical model, the Euler method was initialized
with the vectors of commodity shipments, supply prices, and demand
prices (Qo,1I"0,pO) set equal to zero. The same convergence tolerance
and criterion as for the other price numerical examples were utilized.
For the interested reader, we now present the critical steps in the CM
FORTRAN computation section.
Table 6.8: Iterates generated by the Euler method for a small asymmetric
spatial price example in price and quantity variables
T 1
1['7
2
1['7
QI1 QI2 Q;l Q;2 PI P;
0 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
1 1.000 2.000 0.000 0.000 0.000 0.000 66.75 50.00
2 0.000 0.500 32.63 22.75 24.25 18.25 20.88 0.000
3 28.19 22.13 21.178 0.000 0.000 0.000 4.938 0.000
4 0.000 4.354 4.707 0.000 0.000 0.000 16.84 15.021
5 1.902 1.392 8.510 3.840 0.000 0.000 23.79 6.048
6 3.118 0.899 12.56 1.397 2.049 0.000 26.36 5.441
7 2.882 1.349 14.71 0.394 2.777 0.000 25.52 5.567
8 3.232 1.700 16.02 0.000 2.617 0.000 24.38 6.021
9 3.367 1.792 16.54 0.000 2.211 0.000 23.47 6.404
10 3.459 1.725 16.62 0.000 1.872 0.000 22.93 6.634
11 3.455 1.637 16.54 0.000 1.719 0.000 22.74 6.740
12 3.439 1.562 16.44 0.000 1.642 0.000 22.67 6.798
13 3.420 1.510 16.36 0.000 1.613 0.000 22.66 6.825
14 3.404 1.477 16.30 0.000 1.609 0.000 22.67 6.834
15 3.392 1.460 16.26 0.000 1.616 0.0000 22.69 6.833
16 3.386 1.455 16.24 0.000 1.624 0.000 22.70 6.830
17 3.382 1.453 16.23 0.000 1.631 0.000 22.71 6.827
18 3.379 1.453 16.23 0.000 1.637 0.000 22.72 6.824
19 3.378 1.453 16.22 0.000 1.641 0.000 22.73 6.821
20 3.377 1.455 16.22 0.000 1.644 0.000 22.73 6.819
21 3.377 1.456 16.22 0.000 1.646 0.000 22.73 6.818
22 3.377 1.457 16.22 0.000 1.647 0.000 22.734 6.817
23 3.377 1.458 16.22 0.000 1.648 0.000 22.734 6.817
190 35 ~_ _ _ _C_H_A_P_T_E_R_6_._S.;:...P_:A_T_1_A_L_P_RI-,---,-C_E.....;E--",,-,U:;..:::I.:.;cLI=B:;..:::R=I...:.....,UM
30
2c 25
Ql
E
0..
:.c 20
(f)
.....>-
'6 15
o
E
E
o 10
u
0*-~~~~~~~~~~~~~~-ffi-ffi~~~~~~--4
o 5 10 15 20 25
Iteration Number
1___ 0('. ') -I- 0('. 2) """*"" 0(2. ') -a- 0(2. 2) 1
70
60
50
(/)
Ql
.g 40
a..
.....
Ql
-:C 30
0
~
20
10
~~ ~ h.~-=
0
0 5 10 15 20 25
Iteration Number
___ Supply Price(') -I- Supply Price(2) """*"" Demand Price(') -a- Demand Price(2)
Figure 6.5: Graphical display of iterates of the Euler method for an
asymmetric spatial price example in price and quantity variables
eM FORTRAN Implementation
Do while (err.ge .. 001.or.err1..ge .. 001..or.err2.ge .. 001)
1. QO(:,:)=Q(:,:)
SPRO(:)=SPR(:)
DPRO(:)=DPR(:)
2. SPRICE(:,:)=spread (SPRO(:),dim=2,ncopies=n)
DPRICE(:,:)=spread (DPRO(:),dim=l,ncopies=m)
3. temp(:,:)=QO(:,:)+a T *
(DPRICE( :,: )-G2( :,: )*QO( :,: )*QO( :,:)-G( :,:)*QO( :,: )-H( :,:)
-SPRICE(:,:))
4. Q(:,:)=temp(:,:)
5. where(temp(:,:).lt.O.) Q(:,:)=O.
6. stemp(:)=sum (QO(:,:),2)
stemple :,: )=spread( stemp(: ),dim=l,ncopies=m)
stemp2(:,:)= iRe:,:)*SPRO(:,:)
stemp3(: )=sum(stemp2( :,: ),2)+h
7. temple :)=SPRO( :)+aT *(stemp1(: )-stemp3(:))
8. where(templ( :).It.O.)SPRO( :)=0.
9. Compute the demand counterparts
errl=maxval (abs(SPR-SPRO))
err2=maxval(abs(DPR-DPRO))
end do
We solved 4 problems in this set, ofthe same dimensions as in Section
6.7.1.2. We utilized only the CM-5 architecture in view of the results
in Section 6.7.1.2 . The data (d. (6.119), (6.120), and (6.121)) were
generated randomly and uniformly in the ranges: / E [10, 30], ~ E
[10,100], -mjj E [-5, -55], ~ E [50,5000], J3ij E [.0'5, .55], 9ij E [2:60],
11
and h ij E [5,50], for all i = 1, ... , mj j = 1, ... , n. The off-diagonal terms
in the supply and demand price functions were generated to ensure strict
diagonal dominance, and, hence, a unique solution. Each demand and
supply function had five terms. The sequence {aT} that was used was:
1 {I '2'2'3'3'3'
• X
ll 1 I I }
....
The numerical results are reported in Table 6.9.
The first example in this set, PASP100, required 213 iterations for
convergence, the second example, PASP200, required 240 iterations, the
third example, PASP300, 273 iterations, and the fourth, PASP400, 248
Table 6.9: CM-5 times for asymmetric spatial price problems - Price
formulation
CM-5 Time (sec.)

# of nodes
Example m n 64 128
PASP100 100 100 1.40
PASP200 200 200 2.05
PASP300 300 300 2.82
PASP400 400 400 3.41 2.81
iterations for convergence. We did not implement the algorithm on the

IBM ES/9000 because it was clear from the numerical results presented
earlier that the parallel algorithm should be implemented on a massively
parallel architecture when large-scale problems are to be computed.
As in Section 6.7.1.2, we computed the error e for each of the asym-
metric numerical examples. In these examples, as in the classical ones
reported in Section 6.7.1.2, it was observed that in the case that a vari-
able was zero at convergence, then the corresponding inequality (cf.
(6.62), (6.63), and (6.64)), held precisely. The first example in this set,
PASP100, had an error e=.2005. The second example, PASP200, had
an error e=.2164. The third example in this set, PASP300, had an er-
ror e=.2271. The fourth example, PASP400, had an error of .2160. We
emphasize that these are maximum strict deviations and neither relative
nor average ones.
6.7.3 Discussion
As can be seen from the numerical results in Section 6.7, the massively
parallel implementation of the Euler method on both the CM-2 and
the CM-5 clearly outperformed the serial implementation on the IBM
ES/9000. In fact, in all cases, the times on only 8K processors ofthe CM-
2 were lower than those obtained for the serial implementation. When
32K processors were used, then at least an order of magnitude in speedup,
as compared to the ES/9000 times, was realized for problems solved on
both architectures. Finally, when 256 nodes of the CM-5 were utilized,
the computational time was less than half of that required to solve the
same example using 32K processors of the CM-2.

It is interesting to review the results in Tables 6.2 and 6.7, since the
examples, for a fixed number of supply and demand markets, are actual
"inverses" of one another, that is, the examples in price and quantity
variables in Table 6.7 were constructed from the quantity variable exam-
ples in Table 6.2 by inverting the supply price and demand price functions
and keeping the unit transaction cost functions. Although the model in
price and quantity variables can be viewed as being richer in terms of
the adjustment process, these problems were solved about an order of
magnitude faster, and at a greater computed accuracy (as measured by
the deviation from the equilibrium conditions), than the analogous ones
in quantity variables. Again, this may be due to the judicious selection of
the sequence {aT}' which was done without any prior numerical analysis.
Although, in the case of the nonlinear and asymmetric examples in
Tables 6.4 and 6.9, one cannot make as strong of a statement, since these
examples, unlike the previously discussed ones, are not inverses of one
another, one, nevertheless, sees that the model in price and quanitity
variables can, again, be solved very efficiently to a high degree of accu-
racy. Further research into "good" determination of the sequence {aT}
for given problems and parameters is needed.
In conclusion, we'd like to emphasize the simplicity of the implemen-
tation of the proposed algorithm on both the serial and parallel archi-
tectures. Indeed, at each step, the large-scale problem was decomposed
into subproblems, each of which possessed a closed form solution using
a simple formula. Although other methods, in particular, a projection
method (with fixed step size), will also yield similar subproblems, the
general iterative scheme induces a greater variety of alternative schemes
since it also permits the flexibility of a varying FT. The simplicity of the
projection step is, nonetheless, retained through the projection operator.

A varIational inequality formulation of spatial price equilibrium was first
derived by Florian and Los (1982). Alternative spatial market models,
including the model with both price and quantity variables, along with
their variational inequality derivations can be found in Nagurney (1993).
Section 6.1
This spatial price equilibrium model and its variational inequality for-
mulation of Section 6.1.1 was first presented in Dafermos and Nagurney
(1985). It has served as the basis for a variety of algorithmic treatments,
some of which also exploit the underlying network structure of the prob-
lem (d. Nagurney (1993)). This model in a limiting sense is attained
by suitable replications of the imperfectly competitive oligopolistic spa-
tial market equilibrium model of Section 5.1, as proven in Dafermos and
Nagurney (1987).
The projected dynamical systems model of Section 6.1.2 was pro-
posed by Nagurney, Takayama, and Zhang (1995). The theoretical re-
sults of this section are taken from that reference.
Section 6.2
Stability and sensitivity analysis of spatial price equilibria in a varia-
tional inequality framework were first addressed by Dafermos and Nagur-
ney (1984). Stability analysis of spatial price equilibria as projected dy-
namical systems was introduced by Nagurney and Zhang (1996), from
which the results in this section are taken.
Sections 6.3 and 6.4
The use of the general iterative scheme, in particular, the Euler-
type method, was first proposed for the computation of solutions to a
dynamical (projected) systems model of spatial markets by Nagurney,
Takayama, and Zhang (1995), from which the results of this section are
extracted. Here, however, we also simplify the proof of convergence of the
Euler method, using our stability analysis results. In addition, we have
included small numerical examples for illustrative purposes, and added
additional computational results using the CM-5 architecture. Addi-
tional background on parallel architectures and CM FORTRAN, along
with additional citations can be found in Nagurney (1995).
Sections 6.5, 6.6, and 6.7
The projected dynamical system model for the price and quantity
formulation of spatial price equilibrium was introduced in Nagurney,
Takayama, and Zhang (1996). The theoretical results therein are simpli-
fied herein, using, again, our stability analysis results. Here we report,
in addition, small numerical examples for illustrative purposes.
References
Dafermos, S., and McKelvey, S.C., "Partitionable variational inequali-
ties with applications to network and economic equilibria," Journal of
Optimization Theory and Applications 73 (1992) 243-268.
Dafermos, S., and Nagurney, A.,"Sensitivity analysis for the general spa-
tial economic equilibrium problem," Operations Research 32 (1984) 1069-
1086.
Dafermos, S., and Nagurney, A., "Isomorphism between spatial price and
traffic network equilibrium problems," LCDS #85-17, Lefschetz Center
for Dynamical Systems, Brown University, Providence, Rhode Island,
1985.
Dafermos, S., and Nagurney, A., "Oligopolistic and competitive behavior
of spatially separated markets," Regional Science and Urban Economics
17 (1987) 245-254.
Florian, M., and Los, M., "A new look at static spatial price equilibrium
models," Regional Science and Urban Economics 12 (1982) 579-597.
Friesz, T. 1., Harker, P., and Tobin, R. L., "Alternative algorithms for
the general network spatial price equilibrium problem," Journal of Re-
gional Science 24 (1984) 475-507.
Hartman, P., and Sta.mpacchia, G., "On some nonlinear elliptic differen-
York, 1980.
Nagurney, A., "Computational comparisons of spatial price equilibrium
methods," Journal of Regional Science 27 (1987) 55-76.
Nagurney, A., "Parallel computation," 1995, chapter in Handbook of
Computational Economics, H. Amman, J. Rust, and D. Kendrick,
editors, North-Holland, Amsterdam, The Netherlands, in press.
Nagurney, A., Takayama, T., and Zhang, D., "Massively parallel com-
putation of spatial price equilibrium problems as dynamical systems,"
Journal of Economic Dynamics and Control 18 (1995) 3-37.
Nagurney, A., Takayama, T., and Zhang, D., " Projected dynamical sys-
tems modeling and computation of spatial network equilibria," Networks
(1996), in press.
Nagurney, A., and Zhang, D., "On the stability of spatial price equi-
libria modeled as a projected dynamical system," Journal of Economic
Dynamics and Control 20 (1996), in press.
Samuelson, P. A., "Spatial price equilibrium and linear programming,"
American Economic Review 42 (1952) 283-303.
Smith, T. E., "A solution condition for complementarity problems: with
an application to spatial price equilibrium," Applied Mathematics and
Computation 15 (1984) 61-69.
Takayama, T., and Judge, G. G., Spatial and Temporal Price and
Allocation Models, North-Holland, Amsterdam, The Netherlands, 1971.
Chapter 7
Elastic Demand Traffic

Equilibrium
Congested urban transportation networks represent complex systems in

which users interact so as to determine their cost-minimizing routes of
travel between their points of origin and their destinations. The concept
of "user-optimization" dates to Wardrop (1952). This concept is to be
contrasted with that of "system-optimization" (see, e.g., Dafermos and
Sparrow (1969)) in which the total cost in the network, as represented
by a single objective function, is to be minimized.
The complexity of user-optimized transportation networks, some-
times also referred to as the "traffic assignment" problem, has stimulated
much research in the past several decades, both from methodological per-
spectives, as well as in terms of practical application. The seminal early
reference is the book by Beckmann, McGuire, and Winsten (1956), who
proposed both elastic demand and fixed demand models.
Early treatments imposed assumptions on the user cost functions
on the links of the network so that the equilibrium conditions could be
reformulated as the Kuhn-Tucker conditions of an appropriately con-
structed optimization problem, similar to the early treatment of spatial
price equilbrium problems. Dafermos' (1980) identification of the for-
mulation of the traffic network equilibrium conditions by Smith (1979)
for the fixed demand model as a finite-dimensional variational inequal-
ity problem unveiled and extended this methodology to this problem
domain. Books that discuss methodological approaches to static traf-
fic equilibrium problems include those by Sheffi (1985) and Nagurney
197
198 CHAPTER 7. ELASTIC DEMAND TRAFFIC EQ UILIBRIUM
(1993).
The study of dynamic travel route choice models on general trans-
portation networks, where time is explicitly incorporated into the frame-
work, was initiated by Merchant and Nemhauser (1978a, b), who focused
on dynamic system-optimal networks with the characteristic of many ori-
gins and a single destination. The recent book by Ran and Boyce (1994)
gives an overview of both the history of dynamic traffic network models,
as well as distinct approaches for their analysis and computation.
In this chapter we develop a series of projected dynamical systems
models of congested urban transportation systems, focusing on elastic
demand models. As in the preceding application chapters, we utilize
as the springboard for the dynamic model development, the variational
inequality formulations of the governing equilibrium conditions. In par-
ticular, we propose distinct route travel choice adjustment processes that
correspond to projected dynamical systems.
This chapter is organized as follows. Section 7.1 reviews the traf-
fic network equilibrium model with elastic demands and known ori-
gin/destination pair travel disutility functions introduced by Dafermos
(1982). It then presents the variational inequality formulation of the gov-
erning equilibrium conditions. The projected dynamical system model
is then given.
Section 7.2 develops the stability results for the proposed route travel
choice adjustment process. Presented here are approaches for local sta-
bility at a certain traffic equilibrium and for global stability of the ad-
justment system, which are of interest to both transportation planners
and analysts.
In Section 7.3 discrete time algorithms for the computation of the
solutions to this elastic demand model are proposed that are special
cases of the general iterative scheme of Chapter 4, along with convergence
results. Here we study both the Euler and the Heun methods. Numerical
examples, both small-scale and larger-scale transportation networks, are
then presented in Section 7.4.
In Section 7.5 we consider the elastic demand traffic network equi-
librium problem in the case where the travel demand functions, rather
than their inverses, in the form of travel disutility functions, are given.
Here, we first present the governing variational inequality formulation
and then present the projected dynamical systems model.
Section 7.6 then addresses stability analysis for this model. The
results in this section are subsequently used for convergence analysis in
7.1. THE TRAFFIC MODEL WITH DIS UTILITY FUNCTIONS 199
Section 7.7, wherein discrete time algorithms are described, in the form
of the Euler method and the Heun method. These algorithms are applied
in Section 7.8 for the solution of this model. The numerical examples in
this section are constructed from those in Section 7.4 by retaining the
link user cost functions, but by inverting the travel disutility functions
to obtain the origin/destination travel demand functions.
7.1 The Traffic Model with Disutility Func-

tions
In this section we consider the traffic network equilibrium problem with
elastic demands in which the travel disutility functions associated with
traveling between origin/destination pairs are assumed known. We first
present the variational inequality formulation of the governing equilib-
rium conditions in Section 7.1.1 and then the projected dynamical sys-
tems model ofthe travel route choice adjustment process in Section 7.1.2.
The stationary points of the projected dynamical systems model coincide
with the solutions to the variational inequality problem.
7.1.1 Variational Inequality Formulations

Consider a network [N,L] of nodes N and directed links L. Let a,b,
etc., denote the links, and let p, q, etc., denote the paths (routes), which
consist of a finite sequence of connecting links with a certain orientation.
We let w denote an origin/destination (0 /D) pair of nodes of the
network and n the set of all the O/D pairs for the network. We assume
that there are J O/D pairs. Pw denotes the set of all paths connecting
OlD pair w. Finally, let P = Uwen Pw denote the set of all the paths
in the network.
We assume that there are mw paths connecting the O/D pair w, with
the total number of paths in the network being m = Ewen mw.
Let xp represent the traffic flow on path p. Then a traffic path flow
pattern x is an m-dimensional nonnegative column vector that can be
written as
Let dw denote the traffic demand between O/D pair w, which must
200 CHAPTER 7. ELASTIC DEMAND TRAFFIC EQUILIBRIUM
satisfy
(7.1)
where xp ~ 0, Vp, that is, the sum of the path flows between an OlD
pair w must be equal to the demand dw • We group the travel demands
into a column vector d = {dw,w EO}.
Let fa denote the link load on link a, which, in turn, must satisfy the
following conservation of flow equation
(7.2)
where Dap = 1, if link a is contained in path p, and 0, otherwise.

Expression (7.2) states that the traffic load on a link a is equal to
the sum of all the path flows on paths p that traverse link a.
Let c = {c a , a E L} be the row vector of link costs, with Ca denoting
the user cost of traversing link a.
In general, we assume that the link cost may depend on the flows on
every link, that is,
C = c(J), (7.3)
where c is a given function and f denotes the column vector of link loads.
A user traveling on path p incurs a (path) travel cost Cp satisfying
(7.4)
In other words, the cost of traveling along a path p is equal to the

sum of the link costs of links comprising that path.
From (7.2), (7.3), and (7.4), one sees that both the link costs and
path costs are functions of the path flow pattern x, and, hence, one can
write the following row vectors
c = c(J(x)) = c(x), (7.5)
C = C(J(x)) = C(x). (7.6)

Associated with every OlD pair w, there is a travel disutility Aw ,
which is a function of the travel demand d, that is,
(7.7)
7.1. THE TRAFFIC MODEL WITH DISUTILITY FUNCTIONS 201
Grouping the travel disutilities into a row vector >.,
(7.8)
one can write

>. = >.( d), (7.9)
where>. is the vector function whose components are given by (7.7).
Following Wardrop (1952) and Beckmann, McGuire, and Winsten
(1956), the traffic network equilibrium conditions are given as follows.
Definition 7.1 (Traffic Network Equilibrium)
A path flow pattern x*, which induces a demand pattern d* = d(x*)
through (7.1), is a traffic network equilibrium, if, for every DID pair w
and each path p E Pw, the following equalities and inequalities hold:
C ( *) { = >'w(d*), if x*p >0

(7.10)
p x ~ >'w( d*), if xp* -- 0.
Namely, in equilibrium, only those paths connecting an O/D pair

that have minimal user costs are used, and their costs are equal to the
travel disutility associated with traveling between the O/D pair.
The equilibrium conditions (7.10) have been formulated as a varia-
tional inequality problem by Dafermos (1982). In particular, we have
(x* , d*) E K is a traffic network equilibrium if and only if it solves
the following variational inequality problem:
(C(x*), x - x*) - (>'(d*), d - d*) ~ 0, \/(x, d) E K, (7.11)
where K == {(x, d) : x ~ 0 and (7.1) holds }.

In view of (7.1), one may define
(7.12)
where B is the J x m dimesnional matrix whose (w,p)-th component is

equal to 1, if path p is contained in O/D pair w, and 0, otherwise. Hence,
one can rewrite the variational inequality (7.11) in path flow variables x
only, yielding the following alternative variational inequality:
An Alternative Variational Inequality Formulation

Determine x* E R+, satisfying:
(C(x*) - A(x*),x - x*} > 0, 't/x E R+. (7.13)
It is important to note that variational inequality formulations (7.11)

and (7.13) are path flow formulations, rather than link load formulations,
in that the flow variables are path variables rather than link variables (d.
Dafermos (1982) and Nagurney (1993)). These formulations are more
relevant for the projected dynamical systems models for transportation
since travelers select routes rather than links. This will become more
apparent in the subsequent section.

For the above elastic demand traffic assignment problem, we now propose
the following travel route choice adjustment process.
Suppose that the traffic flow on each path p connecting the OlD pair
w changes at a rate that is equal to the difference between the travel
disutility Aw and the path cost Cpo When the disutility exceeds the path
cost, that is, Aw > Cp , the path flow xp will increase; when Aw < Cp , xp
will decrease. In other words, the travelers continuously switch from
more costly routes to less costly routes, relative to the travel disutilities,
at the rate Aw - Cpo
However, in order to maintain feasibility, the model requires that the
path flow xp remain nonnegative. This process continues until there is
no change in path flows, namely, until all used paths have travel costs
equal to the travel disutilities and unused paths have travel costs greater
than or equal to the disutilities.
The Travel Route Choice Adjustment Process
Mathematically, the route choice adjustment process is defined as:
if xp >0 (7.14)
if xp = 0,
for all wEn and all p E Pw , or, in vector form,
:i: = II(x,A(x)-C(x)), (7.15)

where, recall that, the projection operator II in (7.15) is defined as
(7.16)
with PR'.t' being the usual projection map on R+ given by:
PRm(X)
+
= ArgminzERmllx
+
- zll· (7.17)
A direct application of Theorem 2.4 indicates that the set of the

stationary points of the above travel route choice adjustment process
coincides with the set of traffic network equilibria.
Theorem 7.2
A path flow pattern x* E R+ satisfies the variational inequality prob-
lem (7.13) if and only if it is a stationary point for the ordinary differ-
ential equation (7.15), that is,
0= II(x* )(x*) - C(x*)). (7.18)

Stability analysis is clearly of interest to transportation planners and
analysts. For example, from a system point of view, one would be in-
terested in knowing whether the travel route choice adjustment process
is globally stable. In other words, will any initial flow pattern be driven
to an equilibrium by the adjustment process? Or, will any flow pattern
near an equilibrium always stay close? On the other hand, one may
find oneself in a position lacking complete information where one does
not know the entire cost and disutility structures, but only has knowl-
edge built upon the observed data, in other words, local data. However,
one may have already identified (through observation or computation)
an equilibrium flow pattern within these local data. Consequently, one
would also be interested in verifying whether this certain equilibrium
flow pattern is locally stable or not.
We now present certain definitions and preliminaries that will be
utilized in the following two subsections. Although the definitions are
duplicative of some of those in Chapter 3, we include them here for easy
reference and reinforcement.
Hereafter, let xo(t) (or simply x) be the solution to the initial value
problem (IVP)
x = II(x)(x) - C(x)), x(O) = Xo. (7.19)
Namely, xo(t) is the path flow pattern at time t when the travel route
choice adjustment process started at time 0 with an initial flow pattern
Xo·
The following definitions mathematically clarify the stability con-
cepts used in this section.
Definition 7.2 (Stability at an Equilibrium)
An equilibrium flow pattern x* is stable if for any f > 0, there exists a
a > 0, such that, for every initial flow pattern Xo in the a-neighborhood1
B( x*, a) of x*, the adjustment process starting from Xo will stay in the
f-neighborhood B(X*,f) ofx*, i.e.,
xo(t) E B(x*, f), Vt ~ 0, VXo E B(x*, a). (7.20)
Definition 7.3 (Asymptotical Stability at an Equilibrium)

An equilibrium flow pattern x* is asymptotically stable if it is stable
and there exists some a > 0, such that for every Xo E B(x*, 6),
xo(t) --t x*, as t --t 00, (7.21)
where xo(t) solves IVP (7. 19}.

While Definition 7.2 and Definition 7.3 are provided to address the
local stability, i.e., the stability at a certain equilibrium flow pattern,
Definition 7.4 and Definition 7.5 below describe the global stability, i.e.,
the stability of the system (the route choice adjustment process).
Definition 7.4 (Stability of the System)
The route choice adjustment process (7.15) is stable if for every initial
flow pattern Xo and every equilibrium flow pattern x*, the Euclidean
distance, Ilx* - xo(t)ll, is a monotone nonincreasing function of time t.
1 All the neighborhood mentioned in this chapter are, again, of metrical topology
induced by the Euclidean norm. Particularly, we let B( x·, r) = {x : IIx - x·1I < r}
Definition 7.5 (Asymptotical Stability of the System)

The route choice adjustment process {7.15} is asymptotically stable if
it is stable and for any initial flow pattern Xo, there exists some equilib-
rium flow pattern x*, such that
xo(t) - x*, as t - 00, (7.22)
where xo(t) solves IVP {7.19}.
7.2.1 Global Stability Analysis Using the Monotonicity

Approach
This subsection addresses the global stability of the system with the
proposed travel route choice adjustment process (7.15). In particular,
we show that the adjustment process (7.15) is stable if the link cost
functions and the travel disutility functions are monotone, and that it is
asymptotically stable if the link cost and travel disutility functions are
strictly monotone.
Let d and f denote the demand pattern and the link flow pattern
generated by the path flow pattern x, respectively, via (7.1) and (7.2),
and let d* and f* be generated by x* in the same manner. Explicitly,
the following notations can be understood throughout:
d = d(x), f = f(x),
d* = d(x*), f* = f(x*).
Also, where appropriate:
x = xo(t), d(t) = d(xo(t)), f(t) = f(xo(t)).

For simplicity, we write:
Y(x,x*) := ((x - x*l)(x) - A(x*)), (7.23)
and
Z(x,x*) := ((x - x*)T,C(x) - C(x*)). (7.24)
Then, it follows that
Y(x,x*) = L L (xp - x;). (A (x) - A(x*))

weOpeP",
= ((d - d*?,A(d) - A(d*)), (7.23')

Z(x,x*) = L L ((xp - x;) L Dap(Ca(X) - ca(x*))
wEOpEPw aEL
aEL
= (c(f) - c(f*), f - /*). (7.24')
In this section we present the stability analysis for the system (the
route travel choice adjustment process) using the monotonicity approach
of Chapter 3.
Theorem 7.3
Suppose that the link cost functions c are monotone increasing in the
link load pattern f and that the travel disutility functions A are monotone
decreasing in the travel demand d. Then the route choice adjustment
process (7.15) is stable.
Proof:
Let X* be any equilibrium flow pattern and let Xo be any path flow
pattern. Define
D(xo,x*,t) = IIxo(t) - x*1I2j2. (7.25)
Following the lines of the proof of Theorem 3.5, we have
D(t) ::; (( xo(t) - x*?, ~(x(t)) - ~(x*)) - ((xo( t)- x*?, C( xo(t)) - C( x*))
= Y(xo(t),x*) - Z(xo(t),x*). (7.26)

Since -A and c are monotone, it follows from (7.23') and (7.24') that
Y(xo(t),x*) ::; 0, (7.27)
Z( xo( t), x*) 2:: 0. (7.28)

Therefore, we have
D(t) ::; 0, 'Vt 2:: 0,

and, hence, IIxo(t) - x*11 is monotone decreasing . •

Under the stronger condition of strict monotonicity, we have the fol-
lowing asymptotical stability result for the proposed adjustment process.
Theorem 7.4
Assume that there exists some equilibrium path flow pattern. Suppose
that the link cost functions c and the negative disutility functions -A are
both continuous and strictly monotone in the link load f and the travel
demand d, respectively. Then, the route choice adjustment process (7.15)
is asymptotically stable.
Proof:
Let x* be any traffic network equilibrium. In view of (7.23') and
(7.24'), it follows from the strict monotonicity assumption that
Y(x,x*) = ((d - d*l,A(d) - A(d*)) < 0, Vd =I- d*, (7.29)
Z(x,x*) = ((f - f*l,c(f) - c(f*)) > 0, Vf =I- f*. (7.30)

Hence, according to (7.26), one has
when f(t) = f*, d(t) = d*

D. ( Xo, x *)
,t { =< 0,
0, otherwise,
(7.31)
and, consequently, D( xo, x*, t) is monotone nonincreasing in time t. Let
D_ := lim D( Xo, x*, t). (7.32)

t-+oo
If D_ = 0, then we have our desired result.

Suppose from now on that D_ > O.
Denote:
So = {x: IIx - X*1I2 = 2D_,Y(x,x*) = Z(x,x*) = O} (7.33)
Sl {x: IIx - x*1I2 = 2D_,Y(x,x*) - Z(x,x*) < O}. (7.34)

Then
S = So U Sl = {x: IIx - x*1I2 = 2D_}
is the sphere centered at x* with radius ~.
For each x E So, one has both Y(x, x*) = 0 and Z(x, x*) = O. The
former implies d = d* by (7.29), and, therefore, in view of (7.12),
(7.35)
and the latter implies f = 1* by (7.30), and c(J) = c(J*), which again
suggests that
Cp(x) = Cp(x*), \:Ip E Pw, \:Iw E nj \:Ix E So. (7.36)
Let us write
Q(x*) := {all the paths q: x; = 0, ~w(x*) - Cq(x*) < 0,
q E Pw , for some wEn} (7.37)

and for each q E Q(x*) denote
u; := Cq(x*) - ~w(x*) > o. (7.38)
Hence, for every q E Q(x*) and every x E So, it follows from (7.35) and
(7.36) that
~w(x) - Cq(x) = ~w(x*) - Cq(x*) = -u; < 0, (7.39)
where w is the OlD pair of path q E Q(x*).

From the continuity of the disutility and link cost functions, there
exists a 8(x) > 0 for each x E So and q E Q(x*), such that
~w(x') - Cq(x') < -~u;, \:Ix' E B(x,8(x)). (7.40)
Similarly, for each x E S1, there exists a 8( x) > 0, such that

1
Y(x",x*) - Z(x",x*) < -'2v(x) < 0, \:Ix" E B(x,8(x)), (7.41)
where
vex) := -Y(x,x*) + Z(x,x*) > o. (7.42)
Now, since the compact set S has been covered by
U B(x,8(x)),
XeSOuSl
we can select a finite subset of So, say {xi,i E fo} C So, and a finite
subset of S}, say {xi,i E fd c S1, such that
S c U B(Xi,8(Xi)) Uo U UI , (7.43)
ie10uh
where
Uo := U B(Xi,6(Xi)) (7.44)
ielo
and
U B(Xi,6(Xi)). (7.45)
ielt
Let
Then v> 0, and

1
Y(x",x*) - Z(x",x*) < -2v, \Ix" E UI . (7.46)
For each q E Q(x*), we have from (7.40)
(7.47)
Since IIxo(t) - x*1I2/2 is monotone decreasing to D_, there exists

°
some 'f/O > such that
xo(t) E Uo U UI 'Vt ~ 'TIo.

Denote
To := {t ~ 'f/O : x(t) E Uo}, (7.48)
TI := {t ~ TJo : x(t) E Ut}. (7.49)
Then To and TI are Borel sets and
ToUTI = (TJo,oo).
Let m(·) denote the Lebsque measure in RI. We claim that
m(Tt} < 00. (7.50)
lt follows from (7.31) and (7.46) that
D(xo, x*, t) = D(xo, x*, 0) + 10r·D(xo, x*, r)dr
$ D(xo,x*,O) + f D(xo,x*,r)dr
1('10,t)nT1
:S IIxo - x*112/2 - ~V' m(('TJo,t) n T1 ), (7.51)
whose right-hand side will approach -00, as t - 00, if m(Tl) = 00.

Therefore, (7.50) is true.
Since Ilxo(t) - X*1I2 /2 is monotone decreasing, there is some compact
set B such that
xo(t) E B, Vt~O.
B can be taken, for example, as: B(x*, IIxo - x*II). Let
M := max{IAw(x) - Cq(x)1 : x E B, q E Q(x*)} (7.52)
and arbitrarily choose and fix some q and w so that q E Q(x*),q E Pw'
We have
< Xq(O) + {TJo Ixq(r)ldr +

10
1
(7)O,t)nTl
Ixq(r)ldr + 1(7)o,t)nTo
xq(r)dr
:S Xq(O) + 'TJoM + m(T1)M + 1 (7)O,t) nTo

xq(r)dr. (7.53)
It follows from (7.47) and (7.48) that, for r E To,
1 *
Aw(x(r)) - Cq(x(r)) < --u (7.54)
2 q'
and, hence,
if xq(r) > 0
(7.55)
if x q ( r)= O.
Define
Tooq := {t E To : xq(t) = O}, T01q := {t E To : xq(t) > O}. (7.56)
Then
To = Tooq U T01q . (7.57)
Using the above notation, one has from (7.53) that
which implies that

m(T01q ) < 00 (7.59)
because of the nonnegativity of xq(t). Hence,
m( U TOlq) < L m(TOlq) < 00. (7.60)

qEQ(z*) qEQ(z*)
Let
Too n
qEQ(z*)
Tooq = {t E To: xq(t) = 0, 't/q E Q(x*)}.
It follows then that

To = Too U U TOlq
qEQ(z*)
and
(1]0,00) = TlUTooU U Tolq .
qEQ(z*)
From (7.50) and (7.60), we know that
m(Too) = 00. (7.61)
On the other hand, 't/f > 0, let
Tf := {t 2:: °:Y(x(t), x*) - Z(x(t), x*) < -f}. (7.62)
Then we have that
D(x,x*,t) = D(x,x*,O)+ lot D(x,x*,r)dr

~ D(x,x*,O) + l\Y(x(r),x*) - Z(x(r),x*)]dr
< D(x,x*,O) + [ [Y(x(r),x*) - Z(x(r),x*)]dr

J[O,tjnT.
< IIxo - x*1I2/2 - f· m([O, t] n Tf)' (7.63)

which implies
(7.64)
Letting f = t, it follows from meT!) < 00, and m(Tl) < 00, that we
k '
can find a tk E Too withtk ~ 00, such that
(7.65)
-~ ~ Y(X(tk)'X*) - Z(X(tk)'X*) ~ O. (7.66)

Since {X(tk), k = 1,2, .. ·} is bounded, it contains a convergent sub-
sequence {x(tk,),k' = 1,2", .}, such that
X(tk') --+ X, as k' --+ 00. (7.67)
By (7.66) we have
Y(x,x*) - Z(x,x*) = 0, (7.68)
which, in view of (7.29) and (7.30), implies that
it:= d(x) = d(x*) = d*, 1:= j(x) = j(x*) = j*, (7.69)
and, consequently,
~(x) = ~(x*), (7.70)
Cp(X) = Cp(X*), Vp. (7.71)
In addition, (7.65) leads to
Xq = 0, Vq E Q(x*). (7.72)
We claim that x is an equilibrium path How pattern. In fact, for
every WEn, and every p E Pw , it follows from (7.70) and (7.71) that
0 if x* > 0
~w(x) - Cp(x) = ~w(x*) - Cp(x*) { ~ 0: if x; = o. (7.73)
However, according to the definition of Q(x*), (7.73) implies that

p E Q(x*), if ~w(x) - Cp(x) < 0, and, hence, from (7.72), we have that
xp = 0, whenever ~w(x) - Cp(x) < O. (7.74)
Therefore, it follows from (7.73) and (7.74) that
~w(x) - Cp(x) = 0, if xp > 0 (7.75)
and from (7.73) that
~w(x) - Cq(x) ~ 0, if xp = 0, (7.76)
which together establish that x is an equilibrium How pattern.
Since x*, as an equilibrium How pattern, is arbitrarily chosen, (7.31)
should also be true with x* replaced by x, and, therefore, D(xo, x, t) is a
decreasing function in time t. Associating this fact with equation (7.67),
one concludes that
xo(t) --+ X, as t --+ 00, (7.77)
which completes the proof.
7.2.2 Local Stability Analysis Using the Regularity Ap-

proach
In this subsection, we turn to the local stability analysis at an equilibrium
flow pattern.
The following definition adapts the concept of a regular solution to
a variational inequality problem defined in Chapter 3 to the context of
traffic network equilibrium.
Definition 7.8 (A Regular Traffic Network Equilibrium)
A path flow pattern x* is called a regular (traffic network) equilibrium
if, for all DID pairs, all the paths that connect the DID pair that are
not used have higher travel costs than those that are used and those paths
that are used have the same costs. Mathematically, this can be expressed
as, for every DID pair wEn:
x; = 0, P E Pw '¢=} Cp(x*) > min Cq(x*), p E Pw. (7.78)

qEP",
A traffic network equilibrium (cf. Definition 7.1) is irregular if it is

not regular.
One sees immediately that a regular equilibrium flow pattern is al-
ways a Wardropian equilibrium, and that an irregular Wardropian equi-
librium must have a pair of paths joining the same O/D pair with the
same travel costs while one is used and the other is not used in this equi-
librium flow. This suggests that irregular equilibrium flow patterns are
not likely to emerge in reality and we can focus our attention on regular
equilibrium flow patterns for practical considerations. Interestingly, we
are going to show that regular equilibria do have privilege in stability
analysis.
In the context of the elastic demand traffic network problem, Defini-
tion 7.8 is equivalent to
Definition 7.9 (cf. Definition 7.1)
A path flow pattern x*, which induces a demand pattern d* = d( x*)
through (7.1), is a regular traffic network equilibrium, if, for every DID
pair wand every path pEPw, the following holds:
C (x*) { = Aw(d*), if x*p > 0

(7.79)
p > Aw(d*), if xp* - 0.
Let x* be any fixed equilibrium flow pattern. We say that path p is

an equilibrium active path if xp > 0 and say that path p is an equilibrium
inactive path if xp = O.
Let
U(x*) = {p E P: x; > O} (7.80)
denote the set of all equilibrium active paths at x*, and let
V(x*) = {p E P: x; = O} (7.81)
denote the set of all equilibrium inactive paths at x*.

We may write U and V, respectively, for U(x*) and V(x*) when no
confusion is to be caused, and denote their cardinality by u and v. With
notice to the earlier conventions, one has
u +v = m, and U U V = P. (7.82)
Corresponding to the above notation, any path flow pattern x can

be decomposed into equilibrium active path flows:
(7.83)
and
(7.84)
Let x* be a regular equilibrium flow pattern. Denote the u x u sub-
Jacobian matrix of ~ with respect to the equilibrium active path flows
x;,p E U(x*), by Vu;\(;*). That is,
~
Vu;\(x*) =
(8 [~(
8
x*)] )
Xp
q (7.85)
p,qEU(xo)
where [~(x*)] q = ~w (x*) = ~w (d*), for q E Pw •

Similarly, denote the u X u sub-Jacobian matrix of path costs C with
respect to x;,p E U(x*), by VuC(x*). Namely,
VuC(x*) = (8C ;X*))a p p,qEU(xO)

(7.86)
Using relationships (7.4) and (7.12) one can then write V'u~(x*) and
V'uC(x*) more explicitly. Suppose that there are J OjD pairs n
{WI,' .. ,wJ} and corresponding to the equilibrium flow x*, one has
J
U(x*) = U Uj(x*), (7.87)
j=I
where Uj(x*) = U(x*) n PWj ' If the cardinality of Uj(x*) is denoted by

Uj, then one has
J
U = LUj.
j=I
For any two OjD pairs: Wi,Wj, let Aij denote the partial derivative
8Aw;(d*)j8dj, and let Eij denote the Ui X Uj matrix all of whose entries
are 1. Then one can write
(7.88)
where it is understood that AijEij does not appear if either Ui or Uj is

zero.
On the other hand, by (7.4) one has
= '" " "b p 8c81'

W UaqU
a (f*) -- AT "c(f*) A
tiq v tip, (7.89)
a,bEL Jb
where ~p = (6ap)aEL,~q = (6aq )aEL are column vectors, and V'c(f*) is

the Jacobian matrix of the link costs with respect to link flows. With
this notation, ~u = (~P)PEU' and (7.89) can now be written as
(7.90)
The next theorem presents a criterion to verify the local asymptotical

stability of the route choice adjustment process at a regular equilibrium
flow pattern. This criterion does not require monotonicity assumptions
on the link travel costs and the originj destination pair travel disutilities.
Theorem 7.5
Let x* be a regular equilibrium flow pattern. Then, x* is asymptoti-
cally stable if all the eigenvalues of
Ju = Vu~(x*) - VuC(x*) = Vu~(x*) - (~ufVc(J*)(~u) (7.91)
have negative real parts.

Proof:
According to Chapter 3, the induced minimal face flow at x* is defined
by
(7.92)
where ~(x)u - C(x)U = {~w(x) - Cp(x) : p E U(x*) n Pw}.

By the definition of a regular equilibrium flow (Definition 7.9), the
minimal face flow (7.92) has a stationary point at x*. Since all the
eigenvalues of Ju, the Jacobian matrix of ~(x)U - C(x)U, have negative
real parts, it follows from the classical stability theory (cf. e.g. Hirsch
and Smale (1974)) that the minimal face flow is asymptotically stable
at this stationary point x*. Utilizing Theorem 3.4, the conclusion is
obtained by noticing that the regular equilibrium x* is a regular solution
to the variational inequality problem (7.13) . •
In order to explore the asymptotical stability of the route choice
adjustment process at a regular equilibrium flow, Theorem 7.5 states
that we only need to calculate the eigenvalues of a u X u matrix. One sees
that this may be computationally easier than verifying the monotonicity
of the disutilities and costs.
7.2.3 An Example
The following example highlights the simplicity of the regularity ap-
proach.
Example 7.1
Consider the transportation network as illustrated in Figure 7.1,
which consists of 4 nodes and 7 links.
Suppose that there are 3 OlD pairs in this network, where:
WI = (A,B), W2 = (G,H), W3 = (A,R).

h
Figure 7.1: A transportation network example
The paths joining these olD pairs are listed as:

PWl = {Ph P2}, PI = {a}, P2 = {b}j
PW2 = {P3, P4}, P3 = {g}, P4 = {h}j
PW3 = {Ps, Ps, P7 Ps, pg},
Ps = {a,e}, Ps = {b,e}, P7 = {s,g}, Ps = {s,h}, pg = {I}.
The travel disutility functions are given by:
AWl (d) = -5d + 100,

w1
AW2(d) = -4dW2 - 2dwa + 126,

AW3(d) = -5dwa - 5d + 160.
w1
The link cost functions are given by:
Co.(J) = 1510. + 100,

(J) - { 20lb + 410., if Ib E [0,5]
Cb - 2R +410. + 50, if Ib E [5,00),
(I) - { 10lg + 40, if Ig E [0,10]

c g - 0.5/; + 90, if Ib E [10,00),
Ch(J) = 2!h + fg + 90,

cs(J) = 10fs + 40,
ce(J) = fe + 5fs + 6fg + 6fh + 40,
CI(J) = 10fl + 2fa + 20,

where the travel costs on link b and link 9 are piecewisely defined.
The following equilibrium path flow pattern can be easily identified:
= (0,4,5,0,0,0,0,0,8)T,
which generates a link load pattern:
1* = (J;,fb,f;,fh,J;,J;,Jtf = (0,4,5,0,0,0,8f
The induced equilibrium link costs are:
= (100,80,90,95,40,70,100),
which determines the equilibrium path costs as
C( x*) = (100,80,90,95,170,150,130,135,100)
The equilibrium demands are then:
and, therefore, the induced travel disutilities are:
AW2(d*) = -4d:2 - 2d:3 + 126 = 90,
AW3(d*) = -5d: 1 -5d:3 +160 = 100.

The following listed relationship of the path costs, travel disutilities,

and path flows reveals that X* is a regular equilibrium flow pattern (cf.
Definition 7.9).
CPl (x*) = 100 > AWl (d*) = 80 with X;l = 0,

Cp2 (x*) = 80 AWl (d*) = 80 with * - 4,
x p2
Cp3 (x*) = 90 AW2(d*) = 90 with X;3 = 5,
Cp4 (x*) = 95 > AW2(d*) = 90 with X;4 = 0,
Cps(x*) = 170 > AW3 (d*) = 100 with x;s = 0,
Cp6 (x*) = 150 > AW3(d*) = 100 with X;6 = 0,
C p7 (x*) = 130 > AW3(d*) = 100 with X;7 = 0,
Cps(x*) = 135 > AW3 (d*) = 100 with x;s = 0,
Cp9 (x*) = 100 > AW3 (d*) = 100 with X;9 = 8.
The equilibrium active paths here are:
and the equilibrium-inactive paths are:
Since 1* is known, one can easily identify its local link cost functions
from the piecewise definition and obtain its Jacobian matrix as
15 4 0 0 0 0 2
0 20 0 0 0 0 0
0 0 10 1 0 6 0
V'c(J*) = 0 0 0 2 0 6 0
0 0 0 0 10 5 0
0 0 0 0 0 1 0
0 0 0 0 0 0 10
As a sub matrix of the incidence matrix, one has
0 0 0
1 0 0
0 1 0
bou (bo Pl , boP3 , bo p9 ) =
0 0 0
0 0 0
0 0 1.
Hence,
VuC(x")
In this example,
Consequently, Ul = U2 = U3 = l.
Consequently, one has
~2-5 )
Finally, one obtains
-025 o
Ju = VuA(x") - VuC(x") = ( -14 o
-2 )
-5 o -15
and
det (Ju - >.I) = (-25 - >.)( -14 - >.)( -15 - >.).
Therefore, the eigenvalues of Ju are:
-25, -14, -15,
which are negative real numbers. It thus follows from Theorem 7.5 that
the route travel choice adjustment process is asymptotically stable at the
regular equilibrium flow pattern x".
Remark
Notice that in the above example:
(i). The link costs are piecewisely defined, which is often the case em-
pirically reported for travel costs with congestion, although this example
is created numerically for illustrating the method. However, the piece-
wise definition may present substantial difficulty for verification of the
global monotonicity of these functions. Hence, the regularity approach
becomes the only privileged approach in such cases.
7.3. DISCRETE TIME ALGORITHMS 221
(ii). The link costs are, in fact, not monotone even locally, as can been
seen from the Jacobian matrix VeU·)·
(iii). Nevertheless, the proposed regularity approach for local stability
analysis can easily overcome these obstacles, as shown in the example.
(iv). The problem is reduced to the computation of the eigenvalues of a
sub-Jacobian matrix, Ju, whose size u can be considerably smaller than
that of the original Jacobian matrix. In this example, the number of the
equilibrium-active paths is u = 3, while the entire Jacobian matrix is of
dimension 9 x 9.
7.3 Discrete Time Algorithms

We now consider two special cases of the general iterative scheme pro-
posed in Chapter 4, the Euler method and the Heun method.
Recall that, according to the Euler method, at iteration T one must
compute
(7.93)
whereas, according to the Heun method, at iteration T one must compute
(7.94)
In the case that the sequence {aT} in the Euler method (cf. (7.93)) is
fixed, say, {aT} = p, for all iterations T, then the Euler method collapses
to a projection method, as discussed in Chapter 4.
In the context of the traffic network equilibrium problem with known
travel disutility functions, formulated in Section 7.1, the fact that the
feasible set K is the nonnegative orthant (as was the case in the oligopoly
models of Chapter 5 and the spatial price equilibrium models of Chapter
6), the projection operation in the above discrete time algorithms can
be evaluated explicitly and in closed form. Indeed, at each iteration
T of the Euler method, (7.93) takes the form: For each path p in the
transportation network, compute the path flow x;+1 according to:
(7.95)
Each iteration of the Heun method (cf. (7.94)), in turn, consists of
two steps. First, at iteration T compute the approximate path flows:
(7.96)
and update the approximate travel demands:
,1: = LX;, 'v'w E fl. (7.97)

pEPw
Let
x = {x;,p
T E P} (7.98)
and
(7.99)
Then, for each path p in the transportation network compute the
updated path flows x;+l according to:
X;+l = max{O, x; + a; [Aw(d T ) - Cp(x T ) + Aw(Jr) - Cp(x T )]} , 'v'p E P,

(7.100)
and update the travel demands d~+1 according to:
d:+ 1 = L x;+1, 'v'w E fl.

pEPw
It is worth noting that both the Euler method and the Heun method
at each iteration yield subproblems in the path flow variables, each of
which can be solved not only in closed form, but also, simultaneously.
Hence, these algorithms in the context of this model can be interpreted
as massively parallel algorithms and can be implemented on massively
parallel architectures, as was done for the spatial price equilibrium prob-
lems of Chapter 6.
In order to establish the convergence of the Euler method and the
Heun method, it is expedient to regularize the link cost structures.
Definition 7.10
The link cost function c is called regular if, for every link a E L,
ca(J) ~ 00, as fa ~ 00, (7.101)
holds uniformly true for all link flow patterns.

We note that the above regularity condition on the link cost functions
is natural from a practical point of view and it does not impose any
substantial restrictions. In reality, any link has an upper bound in the
form of a capacity. Therefore, letting fa --+ 00 is an artificial device
under which one can reasonably deduce that ca(J) ~ 00, due to the
congestion effect. Consequently, any practical link cost structure can be

theoretically extended to a regular link cost structure to allow for an
infinite load.
Theorem 7.6 below shows that both the Euler method (7.95) and the
Heun method (7.96)-(7.100) converge to the traffic network equilibrium
under reasonable assumptions.
Theorem 7.6
Suppose that the link cost function c is regular and strictly monotone
increasing, and that the travel disutility function A is strictly monotone
decreasing. Let {a7"} be a sequence of positive real numbers that satisfies
lim a7" = 0 (7.102)

7"-+00
and
(7.103)
Then both the Euler method (7.95) and the Heun method (7.96)-(7.100)
produce sequences {x7"} that converge to some traffic network equilibrium
path flow pattern.
Proof:
In view of Theorem 4.1, one only needs to verify that Assumption
4.1 is satisfied for both methods here. Notice that Assumption 4.1.1 is
already met by the sequence {a7"} selected in accordance with (7.102)
and (7.103).
Assumption 4.1.2 is also satisfied in the Euler method, because of
F7" = F and F is assumed to be continuous.
To verify Assumption 4.1.2 for the Heun method, let S be any com-
pact subset of K = R+. Since F( x) is continuous on S, we have
F(x) = F(x) and IIF(x)11 is bounded in S. Therefore, with notice to
the fact that the projection P is a contraction mapping, we obtain, for
xES C K,
IIP(x - a7"F(x)) - xii = IIP(x - a7"F(x)) - P(x)11 :::; a7"IIF(x)ll---- 0,

uniformly, as T ---- 00. (7.104)
In the Heun method, the approximation F7"(x) takes the form
1
F7"(x) = "2 [F(x) + F(P(x - a7"F(x)))]. (7.105)
Hence,
(7.106)
uniformly tends to zero on S, as T ~ 00, because of (7.104) and the

fact that F is uniformly continuous on S (due to the well-known fact
that any continuous function is uniformly continuous on compact sets).
We now proceed to verify Assumption 4.1.4. For simplicity, we denote
Fp(x) = -(~w(x) - Cp(x» = -(Aw(d) - Cp(x», 'tip E P, (7.107)
F(x) = {Fp(x),p E P}, (7.108)

and
Gp(X) = max{O,-Fp(x)}, 'tip E P, (7.109)
G(x) = {Gp(x),p E P}. (7.110)
The monotonicity of the link costs C implies that the path costs Care
monotone increasing in the path flow pattern x (d. (7.24) and (7.24'».
Combining this result with the assumption that the travel disuility func-
tions A are monotone decreasing in travel demands d, one easily con-
cludes that G( x) is uniformly bounded over K = R+. Namely, there
exists some B > 0, such that
IIG(x)1I ~ B, 'tIx E K. (7.111)
For any path p and link a on p, we have
Cp(x) = L: oapca(f) ~ ca(f), (7.112)

aEL
and
fa = L oapxp ~ xp. (7.113)
pEP
Therefore, it follows from the regularity ofthe link costs (7.101) that
(7.114)
holds uniformly true. On the other hand, the vector of travel disuility
functions, A, is bounded over K because it is continuous and monotone
decreasing. Consequently, in view of (7.114)
-Fp(x) = Aw(d) - Cp(x) ~ -00 uniformly, as xp ~ 00. (7.115)

It is clear from (7.102) and (7.115) that there exist some large enough
real number M and integer N such that all three assertions below hold
simultaneously true:
M
aT < 2B' "IT ~ N, (7.116)
-Fp(x) = ~w(x) - Cp(x) < 0 whenever xp > M, Vp E P, "Ix E K,

(7.117)
x; < 2M, Vp E P, "IT :5 N, (7.118)
where x T = {x;,p E P} is the sequence generated either by the Euler
method or the Heun method.
We claim that
x;
:5 2M, Vp E P, "IT ~ 1. (7.119)
Since the first N items are guaranteed by (7.118), we only need to
prove (7.119) for T ~ N. In fact, this can be done inductively. Suppose
that we have
(7.120)
Then, for the Euler method (7.95), for every path p, one has
XN+l+1
p = max{O , x N
p +1 - aN+l F.p(x N+I)} . (7.121)
We distinquish now between two cases:
Euler-Case (i). If x:+l > M, then by (7.117), Fp(x N+I) > o. There-
fore,
(7.122)
Euler-Case (ii). If x:+l :5 M, then with notice to (7.111) and (7.116),

one has
p + +1 < p +1 + aN+l G p(x N+I) < + 2B

M . B < 2M .
XN I
- xN - M (7.123)
Hence, (7.122) and (7.123) show that

x pN +I+1 -< 2M , Vp E P. (7.124)
By induction, the sequence generated by the Euler method satisfies
(7.119) and is bounded.
For the Heun method (7.96)-(7.100), for every path p, one has
(7.125)
where (cf. (7.96)-(7.99)):
Vw E n,
x = {x;,p E P},
T
and
(iT = {(i~,w En}.
We will consider now three separate cases:
Heun-Case (i). If x~+l ~ ~M, then by (7.125)
x~+I+1 ~ x~+l + T [Gp(x N+1) + Gp(x N+1)]

(7.126)
~ 3~ + ~(2B) = 2M.
Heun-Case (ii). If ~M < x~+l < 2M and x~+l ~ M, then the former
implies Fp(x N+1) > 0 and the latter implies that
N
Xp +1 _ aN+l Rp (x N +1) <
_ M. (7.127)
(7.127) gives
aN+IF:p (x N+l ) -
>px N+l - M > -M
3 - M
2 = -M2' (7.128)
which leads to
(7.129)
Heun-Case (iii). If ~M < x~+l < 2M and x~+l > M, then it follows
from (7.117) that Fp(x N+1) > 0 and Fp(x N+1) > O. Consequently, one
has
X pN +1+ 1 < x p
N +1 < 2M
- (7.130)
from the inductive assumption (7.120).
Thus, we have shown by induction that the sequence generated by
the Heun method satisfies (7.119) and is, hence, bounded.
We now check the validity of Assumption 4.1.3 and Assumption 4.1.5

for the Euler method and the Heun method. By Theorem 7.4, the route
choice adjustment process is asymptotically stable, and, hence, every w-
limit point of the adjustment process is an equilibrium point. In view
of Theorem 7.1 and Theorem 7.2, Assumption 4.1.3 is satisfied. Finally,
Assumption 4.1.5 holds true according to Proposition 4.2, since F( x)
defined in (7.107) and (7.108), is monotone . •

In this section we present numerical results for the Euler and the Heun
methods applied for the computation of traffic network equilibrium prob-
lems with known travel disutility functions. We also provide some numer-
ical results for the projection method in path flow variables. In Section
7.4.1 we consider the computation of solutions to small-scale problems,
whereas in Section 7.4.2 we consider the computation of solutions to
problems of a larger scale.
All the algorithms were coded in FORTRAN and the system used
for the numerical work was the IBM SP2 located at the Cornell Theory
Center. The CPU times are reported exclusive of input/output times
and setup times.
The algorithms were initialized with the travel demands for each
o /D pair set equal to 100 and the demand equally distributed among
the paths connecting each O/D pair. The convergence tolerance f was
set to .001 for all the examples. The convergence criterion utilized was:
Ix;+! - x;1 ~ f, for all paths p.
7.4.1 Small-Scale Examples
In this subsection we considered the computation of small-scale traffic

network equilibrium problems with known travel disutility functions. In
particular, we considered the solution of two examples, the first consist-
ing of linear user link cost functions and linear travel disutility functions,
whereas the second example had user travel link cost functions that were
nonlinear and asymmetric. Both of these examples had a network topol-
ogy depicted in Figure 7.2, which is the Braess (1968) network.
a b
Figure 7.2: The Braess network topology
7.4.1.1 An Example with Linear Functions

Here we considered a traffic network equilibrium problem in which the
user link cost functions (cf. (7.3» were linear and separable, that is, of
the form:
(7.131)
and the travel disutility functions (cf. (7.9)) were also all linear and
separable, that is, of the form:
(7.132)
where ga, ha > 0, for all links a, and m w , qw > 0, for all origin/destination
pairs w.
Following Proposition 2.3, the traffic network equilibrium problem
in this case can be reformulated as the following optimization problem,
with the use of (7.1) and (7.2):
xm1~+ Ea [g; (E Xp Dap)2 + ha(E XpDap)]

E p p
(7.133)
Example 7.2
The transportation network example, depicted in Figure 7.2, con-
sisted of 4 nodes, 5 links, and a single OlD pair WI = (1,4). The user
link cost functions were given by:
and the travel disutility function was given by:
The link user travel cost functions are taken from Braess (1968).
The paths joining OlD pair WI were:
PW1 = {PbP2,PJ}, PI = {a,c}, P2 = {a,e,d}, P3 = {b,d}.
The {aT} sequence used was: .1{1,!,!, l, l, l, ... }.

The Euler method
converged in 106 iterations and .00 CPU seconds to the path flow equi-
librium solution:
with induced link loads:
I: = 4, I; = 2, I; = 2, Id = 4, I: = 2,
and with the travel demand:
The equilibrium path travel costs were:
and the travel disutility evaluated at the computed equilibrium demand

was:
AW1 (d: 1 ) = 92.
We also implemented the projection method by fixing the sequence
{aT} to p for all iterations. We note that this projection method, un-
like the projection method proposed in Dafermos (1982), is a projection
method on the space of path flows (see also, e.g., Aashtiani and Mag-
nanti (1981) and Bertsekas and Gafni (1982)). We first set p = .1 and
did not observe convergence of the projection method in 500,000 itera-
tions. We then set p = .01, and the projection method converged to the
equilibrium solution in 283 iterations and .01 CPU seconds.
The numerical example in this subsection, hence, illustrates another
application of the use of an algorithm induced by the general iterative
scheme of Chapter 4 to solve an optimization problem.
7.4.1.2 A Nonlinear and Asymmetric Example

We then considered the solution of a nonlinear and asymmetric example,
with the same network topology as the network depicted in Figure 7.2,
but with two origin/destination pairs.
The user link cost functions were of the form:
Ca(J) = 9aaf: + ~9abfb + ha, Va, (7.134)

b
whereas the travel disutility functions were, again linear, of the form
given by (7.132).
Example 7.3
The O/D pairs for this problem were:
WI = (1,4), W2 = (1,3).
The user link cost functions were:
Ca(J) = .00005f: + 7 fa + 2!b + 3, Cb(J) = .00003ft + llfb + fa + 8,

cc(J) = .00003f: + 2.5fc + fb + 10, Cd(J) = .00004f1 + !d + .5fa + 6,
ce(J) = .00005f; + 2fe + !d + 1,
and the travel disutility functions were:
The paths joining O/D pair WI were:
PW1 = {Pl,P2,P3}, PI = {a,e,d}, P2 = {a,c}, P3 = {b,d},

whereas the paths joining OlD pair W2 were:
PW2 = {P4,PS}, P4 = {a,e}, Ps = {b}.

The sequence {aT} used was: .1{1,!,!,l,l,l, ... }. With this se-
quence the Euler method converged in 208 iterations and .01 CPU sec-
onds to the solution:
For OlD pair WI:
X;l = 2.85, X;2 = 35.55, X;3 = 34.39,

and travel demand:
d:1 = 72.79,
with equilibrium path travel costs:
CP1 (x*) = 636.22, Cp2 (x*) = 635.96, Cp3 (x*) = 635.87,

and travel disutility:
For OlD pair W2:
X;~ = 0.00, x;s = 1.83,

and travel demand:
d: 2 = 1.83,

AW2 (d: 2 ) = 496.33.
The induced link loads were:
f: = 38.40, fb = 36.22, f; = 37.24, f; = 35.55, .f; = 2.85.

We also implemented the Heun method and the projection method
in path variables for this example. Using the same {aT} sequence as for
the Euler method, the Heun method converged in 116 iterations and .01
CPU seconds. The projection method did not converge with a p set to
.1, but converged in 205 iterations and .01 CPU seconds when p was set
to .01.
Figure 7.3: A transportation network with 20 nodes and 28 links
7.4.2 Larger-Scale Examples

The transportation networks that we considered here had user link cost
functions of the form given by (7.134) and travel disutility functions of
the form (7.132).
Example 7.4
The first larger-scale example consisted of 20 nodes, 28 links, and
8 OlD pairs, and is depicted in Figure 7.3. The network had been
used previously, but with fixed demands, in Nagurney (1984) where it is
referred to as Network 20.
The user link cost functions are reproduced here for completeness:
Cl(f) = 5.10- 5 It +5h +212 +500, c2(f) = 3.10- 5 Ii +412 +4h +200,
C3(f) = 5.10- 5 Ii + 3/3 + 14 + 350, C4(f) = 3.10- 5 It +6/4 + 3/5 +400,

C5(f) = 6 . 10- 5 It + 6/5 + 4/6 + 600, C6(f) = 716 + 317 + 500,
C7(f) = 8.10- 5 Ii +817 +2/s +400, cs(f) = 4.10- 5 Ii + 5/s +2/9 +650,
C9(f) = 10- 5 Ii + 6/9 + 2/10 + 700, ClO(f) = 4/10 + h2 + 800,
Cn(J) = 7· lO- sIt + 7In + 4h2 + 650, CI2(J) = 8h2 + 2h3 + 700,
CI3(J) = lO- s It3 + 7h3 + 3hs + 600, C14(J) = 8h4 + 3hs + 500,
ClS(J) = 3 .1O- s Its + 9hs + 2/14 + 200, CI6(J) = 8h6 + 5h2 + 300,
C17(J) = 3 . lO- s It7 + 7117 + 2hs + 450, ClS(J) = 5hs + h6 + 300,
CI9(J) = 8h9 + 3/17 + 600, C20(J) = 3 .1O- s Ito + 6120 + 121 + 300,
C21(J) = 4·10- s It1 +4121 + h2+400,C22(J) = 2·1O- sIt2+6h2+ 123+500,
C23(J) = 3·1O- sIt3+9h3+2h4+350, C24(J) = 2·1O- s It4+8h4+ hs+400,
C2S(J) = 3.10-S/ts+9hs+3h6+450,c26(J) = 6.10-sJt6+7h6+8h7+300,
C27(J) = 3·10- s It7+8h7+3hs+500, C2S(J) = 3·1O- s Its + 7hs+3h9+650.
The OlD pairs were: WI = (1,20), W2 = (1,19), W3 = (2,17), W4 =
(4,20), Ws = (6,19), W6 = (2,20), W7 = (2,13), and Ws = (3,14), and the
travel disutility functions:
AW3(dw3) = -dW3 + 5000, Aw.(dw4 ) = -6dw4 + 1000,

Aws(dws)= -10dws + 5000, Awe(dws ) = -10dw6 + 2000,
AW7(dw7) = -5dw7 + 1000, Aws(dws) = -4dws + 2000.
Both the Euler a.nd the Heun methods converged in 289 iterations
with the sequence {aT }=.1{1,~,~, 1, 1, 1, ... }.
The Euler method re-
quired .20 CPU seconds for convergence, whereas the Heun method re-
quired .38 CPU seconds for convergence.
We now present the equilibrium pattern in summarized form. In
particular, the computed equilibrium link load pattern was:
Ii = 0.00, 12 = 35.27, I; = 53.22, I: = 34.02,

I; = 14.73, I;' = 80.83, f7 = 48.64, Is = 43.45,
I; = 0.00, liD = 0.00, IiI = 13.34, li2 = 29.37,
li3 = 19.19, fi4 = 19.29, lis = 24.42, li6 = 32.20,
li7 = 5.19, lis = 43.45, li9 = 0.00, 120 = 0.00,
121 = 13.34, 122 = 42.71, 123 = 14.59, 124 = 33.88,
125 = 58.31, 126 = 41.89, 127 = 47.08, 12s = 0.00.

The computed equilibrium demand pattern was:
d~5 = 90.53, d~6 = 0.00, d~7 = 0.00, d~8 = 47.31,

with induced travel disutilities:
AWl (d~l) = 1000.00,

AW3 (d~3) = 4951.39, AW4 (d~4) = 1000.00,
AW5 ( d~5) = 4094.74, AW6 (d~6) = 2000.00,
AW7(d~7) = 1000.00, AW8(d~8) = 1810.77.
All the paths joining OlD pairs: Wt,W2,W4, W6, and W7 had user travel
costs that exceeded the respective OlD pair travel disutility. The six
paths connecting OlD pair W3 all had positive flow and user travel costs
equal to 4,951.4 + or - .3. The four paths joining OlD pair Ws also had
positive flow and travel costs equal to 4094.7 + or -.7. The travelers on
the two paths connecting OlD pair Ws had travel costs equal to 1810.70
and positive flow.
We also applied the projection method to this transportation net-
work. The projection method did not exhibit convergence when p was
set to either .1 or .01. It converged in 730 iterations and .5 seconds of
CPU time when p was set to .001.
Example 7.5
The next larger-scale example, depicted in Figure 7.4, consisted of
25 nodes, 37 links, and 6 OlD pairs. The network had been used in
computational tests in Nagurney (1984), but for the case of fixed travel
demands, where it is Network 11.
The link cost data for the first 28 links was as in Example 7.4. In
addition, links 29 through 37 had the following user cost functions:
C29(J) = 3.10- 5 li9+ 3h9+ ho+450, C30(J) = 4.10- 5 lio+ 7ho+2hl +600,
C31(J) = 3.1O- s1il+8hl+h2+750,C32(J) = 6.1O-s1i2+8h2+3h3+650,

C33(!) = 4.10- 5 li3+9h3+2hl + 750, C34(J) = 6.10- 5 li4+ 7h4+ 3ho+550,
Figure 7.4: A transportation network with 25 nodes and 37 links
= 3.10- 5 f15+8h5+3h2+600, C36(f) = 2.10- 5 f16+8h6+4h1 +750,

C35(f)
C37(f) = 6.10- 5 f17 + 5137 + 136 + 350.
The O/D pairs were: w1 = (1,20), W2 = (1,25), W3 = (2,20), W4 =
(3,25), W5 = (1,24), and W6 = (11,25) and the travel disutility functions:
AWl (d WI ) = -dWI + 1000, AW2 (dW2 ) = -6d + 800,

W2
AW3(dw3)= -10dw3 + 2000, AW4(dw4) = -5dw4 + 6000,

Aws(dws) = -7dws + 8000, AW6(dw6) = -9dw6 + 7000.
In view of the preceding results we only applied the Euler and the
Heun methods to this example. The Euler method converged in 333
iterations and .31 CPU seconds, whereas the Heun method converged in
297 iterations and .56 CPU seconds. We utilized the sequence: {a T }=
.01{1,~,~,~,~,~, ... }.
We now provide the equilibrium results in summary form.
The computed equilibrium link load pattern was:
J; = 55.74, f; = 54.02, f; = 68.61, f: = 38.13,

1; = 0.00, Is = 0.00, 17 = 0.00, 1; = 0.00,

1; = 0.00, 1:0 = 67.07, 1;1 = 1.72, 1:2 = 48.99,
1:3 = 30.48, 1:4 = 38.13, 1:5 = 0.00, 1:6 = 0.00,
1:7 = 0.00, 1:8 = 0.00, 1:9 = 0.00, 1;0 = 60.16,
1;1 = 53.99, 1;2 = 68.06, 1;3 = 32.66, 1;4 = 0.00,
1;5 = 0.00, 1;6 = 0.00, 1;7 = 0.00, 1;8 = 0.00,
1;9 = 44.49, 1;0 = 7.89, 1;1 = 34.92, 1;2 = 65.88,
1;3 = 70.80, 1;4 = 44.49, 1;5 = 52.38, 1;6 = 87.30,
1;7 = 30.37.
The computed equilibrium demand pattern was:
d: l = 0.00, d:2 = 0.00, d:3 = 0.00,

d:4 = 63.58, d: s = 122.81, d:6 = 37.58,
with incurred travel disutilities:
AWl (d: l ) = 1000.00, AW2 (d: 2 ) = 800.00, AW3 (d:3 ) = 2000.00,
AW4 (d: 4 ) = 5682.08, Aws (d:J = 7140.30, AW6 (d: 6 ) = 6661. 77.
The travel costs on all the paths connecting the O/D pairs: WI, W2,
and W3, exceeded the respective O/D pair travel disutility.
In OlD pair W4, four out of the six paths were used and these had
travel costs equal to 5682 + or - 1. In OlD pair W5, all paths except
one were used and the used paths had travel costs equal to 7140 + or
- 1.5. The unused path had a travel cost equal to 7145.24. Four of the
five paths connecting OlD pair W6 were used and these had travel costs
equal to 6661.6 + or -.3. The unused path had a cost equal to 6665.79.
7.5 The Traffic Model with Demand Functions

In this section we present an alternative elastic demand model to the
one proposed in Section 7.1, in which the demand functions associated
with traveling between the OlD pairs are assumed known, rather than
the travel disutility functions. We first present the variational inequality
formulation of the governing traffic network equilibrium conditions in
Section 7.5.1 and then we introduce the projected dynamical systems
model in Section 7.5.2.
7.5. THE TRAFFIC MODEL WITH DEMAND FUNCTIONS 237
7.5.1 The Variational Inequality Formulation

Again, we consider a network [N, L] of nodes N and directed links L. We
retain the notation for the elastic demand model with travel disutility
functions outlined in Section 7.1.1, except for the following changes.
We assume now that the demand dw , associated with traveling be-
tween OlD pair w, is now a function, in general, of the travel disutilities
associated with traveling between all the OlD pairs, that is,
(7.135)
and we group now the travel demand functions into a row vector d and
assume that the vector ,X is a column vector, rather than a row vector.
Note that the expression (7.2) relating the link loads to the path
flows is still valid, as is the nonnegativity assumption on the path flows.
In addition, the link cost and path cost functions are defined according
to (7.3)-(7.6).
In view of (7.135), expression (7.1) may be rewritten as:
(7.136)
The traffic network equilibrium conditions take on here the following

form (cf. Beckmann, McGuire, and Winsten (1956) and Dafermos and
Nagurney (1984»:
A path flow pattern x* and a travel disutility pattern A* is a traffic
network equilibrium pattern if, for every OlD pair wand each path
p E Pw , the following equalities and inequalities hold:
c (x*) { = ,X~, if x; > 0

p ~ ,X~, if x;
= 0, (7.137)
and
dw('x*) { = LpEP", xi'
~f ,X; > 0
::; LpEP", xP' If 'xw = O.
(7.138)
Condition (7.137) is analogous to condition (7.10) where now the

equilibrium travel dis utilities ,X* are to be determined, rather than the
equilibrium travel demand d*.
Condition (7.138) is similar to condition (6.64) for the spatial price
equilibrium problem in price and quantity variables. In other words, if
the travel disutility (or price) associated with traveling between an 0 jD

pair w is positive, then the "market" clears for that 0 jD pair, that is,
the sum of the path flows on paths connecting that O/D pair are equal
to the demand associated with that O/D pair; if the travel disu tility (or
price) is zero, then the sum of the path flows can exceed the demand.
Here we can immediately write down the governing variational in-
equality formulation in path flow and travel disutility variables (see,
also, e.g., Dafermos and Nagurney (1984) and Nagurney (1993)).
Theorem 7.7 (x*, >.*) E R++ J is a traffic network equilibrium if and
only if it satisfies the variational inequality problem:
I: I: [Cp(x*) - >':1· [xp - x;] - I: [dwC>'*) - I: x;].[>.w - >':1 ~ 0,

w pEP", w pEP",
(7.139)
or, in vector form:
(C(x*) - BT>.*,x - x*) - (d(>'*) - Bx*,>. - >.*) ~ 0,
Vex, >.) E R++ J , (7.140)

where recall that B is the J X m dimensional matrix with element (w, p) =
1, if p E Pw , and 0, otherwise.

For the above elastic demand traffic assignment problem, we now propose
As in the elastic demand model of Section 7.1.2, suppose that the
traffic flow on each path p connecting the O/D pair w changes at a
rate that is equal to the difference between the travel disutility >'w and
the path cost Cpo When the disutility exceeds the path cost, that is,
>'w > Cp, the path flow will increase; when >'w < Cp, the path flow xp
will decrease. Hence, the travelers continuously switch from more costly
routes to less costly routes relative to the travel disutilities at the rate
>'w - Cpo Moreover, in order to maintain feasibility, one must ensure that
the path flows remain nonnegative.
The travel disutility >'w associated with traveling between O/D pair
w, on the other hand, changes at a rate equal to the difference between
the demand dw and the sum of the path flows on paths connecting O/D
pair w. If the sum exceeds the demand, the travel disutility (or price)
will decrease; if the demand exceeds the sum, the travel disutility (or
price) will increase. In addition, nonnegativity of the travel disutilities
must be maintained.
This process continues until there is no change in path flows and
travel disutilities.
For all wEn and all p E Pw:
. {AW-CP(X), if xp>O
(7.141)
xp = max{O, Aw - Cp( x)}, if xp = 0,
and
(7.142)
. X =
Lettmg _ (x, A),. F(X) T_{C(X)-BTA} (
= -d(A) + Bx ,7.141 ) and ( 7.142)
may be expressed in vector form as:
x = ll(X, -F(X)). (7.143)
Again, applying Theorem 2.4 yields the following result.

Theorem 7.8
A path flow and travel disutility pattern X* = (x*, A*) satisfies vari-
ational inequality (7.140) if and only if it is a stationary point of the
ordinary differential equation (7.143), that is,
0= ll(X*, -F(X*)). (7.144)

In this section we present the stability analysis for the route choice ad-
justment process described by (7.141)-(7.142). We provide the global
stability results under monotonicity assumptions analogous to Theorem

7.3 and Theorem 7.4. Besides the significance of these stability proper-
ties by themselves, as motivated earlier in Section 7.2, the results will
also be utilized in next section in the establishment of the convergence
of discrete time algorithms.
We first adapt into the framework of the elastic traffic model with
demand functions the concepts of stability and asymptotical stability of
the system (7.141)-(7.142) (cf. Definition 7.4 and Definition 7.5).
The route choice adjustment process {7.141}-{7.142} is stable if for
every initial flow and disutility pattern, XO = (xO, >.0), and every equilib-
rium flow and disutility pattern, X* = (x*, >. *), the Euclidean distance,
IIX* - XO(t)lI, is a monotone non increasing function of time t.
The route choice adjustment process {7.141}-{7.142}} is asymptoti-
cally stable if it is stable and for any initial flow and disutility pattern,
XO = (xO, >.0), there exists some equilibrium flow and disutility pattern,
X* = (x*,>.*), such that
XO(t) ---t X*, as t ---t 00, (7.145)
where XO(t) = (xO(t), >.O(t)) solves {7.141}-{7.142} with XO(O) = XO =

(xO, >.0).
The global stability properties of the route choice adjustment process
(7.141)-(7.142) are now presented.
Theorem 7.9 (cf. Theorem 7.3)
Suppose that the link cost functions c are monotone increasing in the
link load pattern f and that the demand travel functions d are monotone
decreasing in the travel disutilities >.. Then the route choice adjustment
process {7.141}-{7.142} is stable.
Proof:
Let X* = (x*, >'*) be any equilibrium flow and disutility pattern and
let XO = (xO, >.0) be any initial flow and disutility pattern. Define
D(t) = D(Xo, X*, t) := IIXO(t) - X*1I2/2, (7.146)
where XO(t) = (xO(t), >.O(t)) satisfies (7.141)-(7.142) with XO(O) = Xo.

Then, following the lines of the proof of Theorem 3.5 (cf. (3.80)-(3.82)),
one has
D(t)
~ I)(dw(.xO(t» - L: x~(t» - (dw(.x*) - L: x*)][.x~(t) - .x:l
w pEPw pEPw
- L: L: [(Cp(XO(t» - .x~(t» - (Cp(X*) - .x:)][X~(t) - x;l
w pEPw
-L L [Cp(xO(t» - Cp(x*)][x~(t) - x;l

w pEPw
= (d(.x°(t»-d(.x*), .x°(t)-.x*)-(c(J°(t»-c(J*), jO(t)- 1*) ~ 0, (7.147)
where JO(t) and 1* are, respectively, generated by xO(t) and x* through
(7.1). Therefore, IIXO(t) - X*II is monotone decreasing.
Theorem 7.10 (cf. Theorem 7.4)
Assume that there exists some equilibrium path flow and disutility
pattern. Suppose that the link cost Junctions c are strictly monotone in-
creasing in the link load J and that the demand Junctions d are strictly
monotone decreasing in travel disutilities.x. Then, the route choice ad-
justment process (7.141)-{7.142) is asymptotically stable.
Proof:
Let X* = (x*, .x*) be any equilibrium flow and disutility pattern and
let XO = (xO, .x 0 ) be any initial flow and dis utility pattern. As derived
in the proof of Theorem 7.9, one has
D(XO,X*,t)
~ (d(.x°(t» - d(.x*), .x°(t) - .x*) - (c(J°(t» - c(J*),j°(t) - 1*) ~ 0.

By the strict monotonicity assumptions of the theorem, we have that
D(XO X* t) { ~ 0, when J(t) = 1*, .x°(t) = .x* (7.148)

" < 0, otherwise,
and, consequently, D( XO, X*, t) is monotone nonincreasing in time t.

Let
D_ := lim D(xo, x*, t). (7.149)
t-+oo
If D_ = 0, then we have our desired result.

Suppose from now on that D_ > O.
Denote:
A(oX, oX*) = (d(oX) - d(oX*), oX - oX*), (7.150)
Z(x,x*) = (c(x) - c(x*),/(x) - I(x*»), (7.151)
and
So = {X: IIX - X*1I2 = 2D_, A(oX, oX*) = Z(x, x*) = O} (7.152)
SI = {X: IIX - X*1I2 = 2D_, A(oX,oX*) - Z(x,x*) < O}. (7.153)

Then
S = SOUSI = {X: IIX-X*1I2 =2D_}
is the sphere centered at X* with radius v'2D_.
For each X E So, one has that both A(oX,oX*) = 0 and Z(x,x*) = O.
The former implies that oX = oX *, and the latter implies that I = f*,
because of the strict monotonicity of c, which again suggests that
(7.154)
Therefore,
So = {(oX*, x) : (7.154) holds}. (7.155)
Let us write
Q(X*) := {all the paths q: x; = 0, oX: - Cq(x*) < 0,
q E Pw , for some wE O} (7.156)
and for each q E Q(X*) denote
u; := Cq(x*) - oX: > O. (7.157)

Hence, for every q E Q(X*) and every X E So, it follows from (7.155)
and (7.157) that
oXw - Cq(x) = oX: - Cq(x*) = -u; < 0, (7.158)
where w is the OlD pair of path q E Q(X*).
From the continuity ofthe link cost functions, there exists a heX) >0
for each X E So and a q E Q(X*), such that
oX~ - Cq(x') < -~u;, "IX' = (x', oX') E B(X,h(X». (7.159)

Similarly, for each X E SI, there exists a 8(X) > 0, such that
A(.x",.x*) - Z(x",x*) < -~v(X) < 0, \IX" E B(X,8(X», (7.160)
where
veX) := A(.x,.x*) + Z(x,x*) > 0. (7.161)
Now, since the compact set S has been covered by
U B(X,8(X»,
XeSOuSl
we can select a finite subset of So, say {Xi, i E Io} C So, and a finite
subset of SI, say {Xi, i E It} C SI, such that
S c U B(Xi,8(Xi» = Uo U UI, (7.162)

ielouh
where
Uo := U B(Xi,8(Xi» (7.163)
ie10
and
U1 := U B(Xi,8(Xi». (7.164)
ieIl
Let
Then v > 0, and
A(.x",.x*) - Z(x",x*) < -~v, \IX" E U1 • (7.165)
For each q E Q(X*), we have from (7.159) that
.x'W - cq (x') <

_ -2"u
1 *q , \IX' E uo·
TT (7.166)
Since IIXO(t) - X*1I2/2 is monotone decreasing to D_, there exists

some'T/O > 0, such that
Denote
To := {t ~ 'fJo : XO(t) E Uo}, (7.167)
(7.168)
Then To and TI are Borel sets and
ToUTI = (1]0,00).
Let m(·) denote the Lebsque measure in RI. We claim that
(7.169)
It follows from (7.148) and (7.165) that
D(Xo,X*,t) = D(XO,X*,O) + fat D(XO,X*,r)dr
::; D(XO,X*,O) + 1(7JO,t)nTl

D(XO,X*,r)dr
(7.170)
whose right-hand side will approach -00, as t ----t 00, if m(TI ) = 00.
Therefore, (7.169) is true.
Since IIXO(t)-X*1I2 /2 is monotone decreasing, there is some compact
set B such that
Let
M := max{IAw - Cq(x)1 : X E B, \fq} (7.171)
and arbitrarily choose and fix some q and w so that q E Q(X*), q E Pw .
We have
Xq(t) = xq(O) + fat xq(r)dr
< xq(O) + f770 Ixq(r)ldr +

Jo
1
(7JO,t)nTl
Ixq(r)ldr + 1
(7JO,t)nTo
xq(r)dr
::; Xq(O) + 1]oM + m(TI)M + 1 (7JO,t) nTo

xq(r)dr. (7.172)
It follows from (7.166) and (7.167) that, for r E To,
(7.173)
and, hence,
if xq(r»O
(7.174)
if xq(r)=O.
Define
Tooq := {t E To : Xq(t) = O}, T01q := {t E To : xq(t) > O}. (7.175)
Then for every q

To = Tooq U T01q . (7.176)
Using the above notation, one has from (7.172) that
Xq(t) ~ Xq(O) + (1]0 + m(T1»· M - ~u;. m((1]o,t) n TOlq ), (7.177)
which implies that

m(T01q ) < 00 (7.178)
because of the nonnegativity of Xq(t). Hence,
m( U To1q ) < E m(T01q ) < 00. (7.179)

qEQ(X*) qEQ(X*)
Let
Too n
qEQ(X*)
Tooq = {t E To: xq(t) = 0, 't/q E Q(X*)}.
It follows then that
To = Too U U T01q
qEQ(X*)
and
(1]0,00) = Tl U Too U U T01q .
qEQ(X*)
From (7.169) and (7.179), we know that
m(Too) = 00. (7.180)
On the other hand, 't/€ > 0, let
(7.181)
Then we have that
D(XO,X*,t) = D(XO,X*,O) + fot D(XO,X*,r)dr
~ D(Xo,X*,O) + fot[A(>.(r),>.*) - Z(x(r),x*)]dr
~ D(XO,X*,O) + f [A(>.(r),>.*) - Z(x(r),x*)]dr

J[O,tjnT.
< IIxo - X*112 /2 - f· m([O, t] nT E ), (7.182)
which implies
(7.183)
Letting f = t,
it follows from the fact that m(Tl) <00 and that
k
m(T1)<00, that we can find tk E Too and tk ----+ 00, such that
(7.184)
(7.185)
Since {X°(tk), k = 1,2,···} is bounded, it contains a convergent

subsequence {X(tkl),k' = 1,2,· .. }, such that
(7.186)
>.O(tkl) ----+ )., as k' ----+ 00. (7.187)

By (7.185) we have
A()' - >'*) - Z(x, x*) = 0, (7.188)
which implies that
). = >'*, 1:= J(x) = J(x*) = /*, (7.189)
and, consequently,
dw ()') = dw (>'*) (7.190)
Cp(X) = Cp(X*), 'tip. (7.191)
In addition, (7.184) leads to
Xq = 0, 'tIq E Q(X*). (7.192)

We claim that X = (x,.\) is an equilibrium flow and disutility pat-

tern. In fact, for every w E S1, and every p E Pw , it follows from (7.190)
and (7.191) that
if x*p > 0
(7.193)
if xp* - 0.
However, according to the definition of Q(X*), (7.193) implies that

p E Q(X*), if .\w - Cp(x) < 0, and, hence, from (7.192), we have that
xp = 0, whenever .\W - Cp(x) < O. (7.194)
Therefore, we have
0, if xp > 0 (7.195)
and from (7.193) that
(7.196)
which together demonstrate that X satisfies (7.137). Therefore, the x

variables of XO(t) are stationary for t E So. In view of (7.183), one easily
concludes from the fact that D(XO, X*, t) is strictly decreasing, except
possibly on So, that XO(t) converges to X.
Denote dw('x)-LpEPw xp by gw('x, x). Then,if.\w ~ 0 and gw(.\,x) >
0, it follows from the continuity of gw that, for t large enough
° °
gw('x (t),x (t)) > 2
1 gw ('x,x)
-_ > O. (7.197)
However, by definition (7.142), (7.197) implies that
,x~ (t) -----t 00 as t -----t 00, (7.198)
which is a contradiction. Hence, we always have
(7.199)
If gw(.\, x) < 0, then there is some large enough T, such that
° °
gw('x (t),x (t)) < -21 -
gw('x,x) < O,Vt ~ T. (7.200)
According to the definition (7.142) of the route choice adjustment pro-

cess, A~(t) is monotone decreasing when t ~ T. In fact, it drops at least
linearly with a rate of -hw('x, x) until it reaches zero.
From the above arguments one easily sees that
(7.201)
Hence, X also satisfies (7.138) and, therefore, it is an equilibrium flow

and disutility pattern . •
7.7 Discrete Time Algorithms

We consider, as in Section 7.3, two special cases of the general iterative
scheme of Chapter 4, in particular, the Euler method and the Heun
method for the computation of the equilibrium traffic path flow and
travel disutility pattern.
For easy reference, we recall that the Euler method, at iteration T,
takes the form:
(7.202)
whereas the Heun method, at iteration T, takes the form:
(7.203)
Making the observation that the feasible set is simply R'++J, which is
the nonnegative orthant, one, again, obtains closed form expressions for
the above projection operations. In the case of the Euler method (7.202)
becomes: For each path p in the transportation network compute the
path flow X;+l according to:
(7.204)
and for each O/D pair w in the transportation network compute the
travel disutility A:+l according to:
A:+1=max{O,A:+aT(d w (AT)- LX;)}. (7.205)

pEPw
Each iteration of the Heun method, in turn, (cf. (7.203)) consists of

two steps. First, at iteration T compute:
(7.206)
and
A:+1 = max{O,'x: + aT(dw(XT) - LX;)}, Vw E n. (7.207)

pEP",
Let xT = {x;,p E P} and AT = {A:,w En}.

Then, for each path p in the transportation network compute the
updated path flows x;+1
according to:
(7.208)
and the updated travel disutilities for each OlD pair w according to:
,X:+1 = max{O,'x: + a; [dW(,XT) - L x; + dw(AT) - LX;]}.

pEP", pEP",
(7.209)
It is worth noting that, for both the Euler and the Heun methods
applied to this elastic demand problem, the encountered subproblems
in path flow and travel disutility variables can be computed not only
in closed form, but, also simultaneously. Hence, these trafffic network
equilibrium problems are also amenable to solution via massively parallel
architectures using our proposed methodology of projected dynamical
systems. This approach may be particularly promising in light of the
fact that urban transportation networks are very large in practice.
In an endeavor to establish the convergence of the Euler method
(7.204)-(7.205) and the Heun method (7.206)-(7.209), we need some ad-
ditional assumptions. In a practical realization of a traffic network equi-
librium problem with elastic demands as functions of the travel disutili-
ties, the following conditions are expected to prevail:
(i). For every OlD pair w, the travel demand function dw('x) has an
upper bound;
(ii). For every OlD pair w and every path p connecting w, one has
'xw ~ Cp(x), for sufficiently large xp;
(iii). For every OlD pair w, one has dw(,X) ~ LpEP", xP ' for sufficiently
large 'xw.
These conditions can be interpreted as follows. If the traffic flow on

path p is extremely high, then the travel cost on this path will exceed the
travel disutility Aw. Also, the sum of the path flows between OlD pair w
will be abundant, attracted by the sufficiently high disutility associated
with this OlD pair, and, hence, adequate for the travel demand dw(A),
which should be lower because dw(A) is usually a decreasing function of
Aw. Mathematically, these three conditions can be expressed as:
Assumption 7.1
Assume that there exist sufficiently large constants Md, M x , and M A ,
such that
dw(A) ~ Md, VA E R~ (7.210)
Aw ~ Cp(x), if xp ~ Mx (7.211)
dw(A) ~ E x p, if Aw ~ M A , (7.212)
pEP",
for any wand p.

Theorem 7.11 below shows that the Euler method and Heun method
proposed for the traffic model with demand functions converge under
reasonable conditions.
Theorem 7.11
Suppose that the link costs c are strictly monotone increasing in link
loads f and that the travel demands d are strictly monotone decreasing
in travel disutilities A. In addition, assume that Assumption 7.1 holds
true. Let {aT} be a sequence of positive real numbers that satisfies
lim aT
T-+OO
=0 (7.213)
and
(7.214)
Then, both the Euler method (7.204)-(7.205) and the Heun method (7.206)-
(7.209) produce sequences {XT} = {(XT, AT)} that converge to some equi-
librium flow and disutility pattern.
Proof:
According to Theorem 4.1, it is sufficient to verify that Assumption
4.1 is satisfied for both methods here. Notice that Assumption 4.1.1 is
already met by the sequence {aT} selected in accordance with (7.213)

and (7.214).
Let X = (x, A) and
F(X) = {Fp(X), pEP; Fw(X), wEn}, (7.215)
where
Fp(X) = Cp(x) - Aw; Fw(X) = L Xp - dw(A). (7.216)

pEPw
In fact, (7.215)-(7.216) articulates the F that corresponds to (7.202) for

the Euler method, and (7.206)-(7.209) articulate the F that corresponds
to (7.203) for the Heun method.
In the Euler method, Assumption 4.1.2 is satisfied due to the fact
that FT = F and that F is continuous.
To verify Assumption 4.1.2 for the Heun method, let 5 be any com-
pact subset of K = R'++J. Since F(X) is continuous on 5, we have
p(X) = F(X) and IIF(X)II is bounded in 5. Therefore, with notice to
the fact that the projection P is a contraction mapping, we obtain, for
X E 5 c K,
uniformly, as T -----+ 00. (7.217)

In the Heun method, the approximation FT(X) takes the form
1
Fr(X) = 2" [F(X) + F(P(X - aTF(X)))]. (7.218)
Hence,
IIFT(X) - F(X)II = ~IIF(P(X - aTF(X))) - F(X)II (7.219)
uniformly tends to zero on 5, as T -----+ 00, because of (7.217) and the

fact that F is uniformly continuous on 5 (due to the well-known fact
that any continuous function is uniformly continuous on compact sets).
We now proceed to verify Assumption 4.1.4 for the Euler and Heun
methods. We denote
G(X) = {Gp(X), pEP; Gw(X), wEn}, (7.220)

where
Gp(X) = max{O, -Fp(X)}, Gw(X) = max{O, -Fw(X)}. (7.221)
Then, it is obvious that, for the Euler method, (7.204)-(7.205),
p <
x'T+l _ x PT + a'T GP (X'T) (7.222)
>.'T+1
w _ >. 'WT + a'T GW (X'T) ,
< (7.223)
and, for the Heun method, (7.206)-(7.209),
x;+1 ~ x; + a; [Gp(X'T) + Gp(X'T)] (7.224)
>.:+1 ~ >.: + a; [Gw(X'T) + Gw(X'T)]. (7.225)
On the other hand, Assumption 7.1 suggests that
Gp(X'T) = 0, if xp ~ Mx , (7.226)
Gw(X'T) = 0, if >'w ~ M).., (7.227)

and we have, by definition, that
Gp(X'T) ~ >.:, if Gp(X'T) > 0 (7.228)
Gw(X'T) ~ dw(>''T), if Gw(X'T) > o. (7.229)

Since a'T --t 0, as T --t 00, there exists a large enough integer N,
such that
. {11M} N. (7.230)
a'T ~ mIll - , -, M ' VT~
m 4 d
Select M so that
M ~ max{Mx,M)..,Md,max{x;,>.:,p E Pw,w E f!,1 ~ T ~ N}}.

(7.231)
We claim that
(7.232)
Since the first N items of (7.232) are guaranteed by the chosen M in

(7.231), we only need to show (7.232) for T = N + lj I = 1,2,···. This
can be done inductively.
Suppose that we have

x:+1 ~ 2M, >,1::+1 ~ 2M, Vp E Pw, Vw E !1. (7.233)
To show that x:+1 ~ 2M, for the Euler method, we distinguish between
two cases:
Euler( x )-Case(i).
If x;'+1 > M, then by (7.226), Gp(XN+I) = o. Therefore, according to
(7.222), one has
(7.234)
Euler(x )-Case(ii).
If x;'+1 ~ M, then, according to (7.228) and (7.233),
~ x;'+1 + aN+IGp(X N+1) = x:+1 + aN+I)..;;+1 (7.235)

~ M + (~). M ~ 2M.
Likewise, one deduces that )..;;+1+1 ~ 2M from the following two

cases.
Euler( ).. )-Case( i).
If )..~+I ?:: M, then, according to (7.227), Gw(XN+I) = O. Hence, it
follows from (7.223) that
(7.236)
E uler( ).. )-Case( ii).
If )..[f+1 ~ M, then by (7.229) and (7.223), one has
)..;;+1+ 1 ~ )..;;+1 + aN+IGw(XN+1)
<
-
M + Kd
Md w
()..N+I) (7.237)
~2M,
where in the last inequality we invoke the assumption that the travel
demand is bounded by Md in (7.210).
By induction, (7.234) - (7.237) show that the sequence {XT} gener-
ated by the Euler method, (7.204) - (7.205), satisfies (7.232) and, hence,
is bounded.
We now prove (7.232) for the Heun method. To this end, one first
realizes that X N+1+1 = (xN+1).N+I) generated by (7.206) - (7.209) in
the Heun method, is, indeed, X N+1 = (x N+1+1,)..N+I+1) in the Euler
method. Hence, combining (7.234) - (7.237) demonstrates that
N+1 <
-p
X ,N+I <
_ 2M ,"w _ 2M ,vp,
\.J
vw.
\.J (7.238)
We consider now the following distinct cases under the inductive

assumption (7.233).
Heun(x)-Case(i).
If x:+l $ ~M, then by (7.228) and (7.238), we have
$ x:+l + a~tl [Gp(XN+l) + Gp(XN+l)]

< 2M + aNti [>.N+l + XN+l] (7.239)
- ~ 2 w w
$ 2M + ~ ·4M = 2M.
Heun(x)- Case(ii).
If ~M < x:+l $ 2M and x:+l $ M, then the latter implies that
X pN+1_ aN+l F.p (XN+l) <

_ M. (7.240)
Hence,
3 M
aN+l F.p (XN+l) >
-
xpN+1- M > -M
2 - M = -2 ' (7.241)
which, in view of (7.208) and (7.228), yields
<
-
xpN+1_ aNti
2
F.P (XN+l) + !!x.G
2 P
(XN+l)
< 2M _
- lM + aNtlXN+l (7.242)
2M + -4 . 1.
2 w
<
- 2 2
2M < -
2M.
Heun( X )-Case( iii).

If ~M < x:+l $ 2M and x:+l > M, then it follows from (7.226) that
Gp(XN+l) = 0 and that Gp(XN+l) = 0 and, hence,
x:+l+1 $ xN+1 + T[Gp(X N+1) + Gp(XN+l)] (7.243)

=/fY+l
p
<
-
2M.
Heun( >.)- Case( i).

If >.~+l $ ~M, then by (7.225) and (7.229), one has
>.~+l+l $ >.~+l + a~+l [Gw(X N+1+ Gw(XN+1)]
$ ~M + a~+l [dw(>.N+l) + dw(XN+l)]

3 1
< - + -2Dd
- 2 8
<
-
2M. (7.244)
Heun( A)- Case( ii).

If ~M < A~+l ~ 2M and ).~+l ~ M, then the latter implies that
N+1 _ aN+l F.w(XN+l) <

Aw _M, (7.245)
which leads to
aN+l F.w(XN+l) >

- Aw+ _ M > M
N 1
2 . (7.246)
Therefore, by (7.209), (7.229), and (7.246), one deduces that
AN+l+1 < AN+1 _ aN+l F. (XN+l)

w -w 2 w
+ aN+l
2
G (XN+l)
w
< ~M + aN+l d ().N+l)

- 2 2 w
3 1
~ 2M + gMd ~ 2M. (7.247)
Heun( A)- Case( iii).

If ~M < A~+l ~ 2M and >'~+l > M, then by (7.227), Gw(X N+1) +
Gw(X N+1) = O. Hence, we have that
(7.248)
In conclusion, we have shown that (7.233) deduces that
X:+l+1 ~ 2M, A~+I+1 ~ 2M, 'Vp, 'Vw (7.249)
for the Heun method. Therefore, by induction, (7.232) is valid for every
iteration T.
Namely, Assumption 4.1.4 is verified for both the Euler and the Heun
methods.
According to Theorem 7.10, the route choice adjustment process
(7.141)-(7.142) is asymptotically stable, and, hence, every w-limit point
of the adjustment process is an equilibrium flow and disutility pattern.
Therefore, Assumption 4.1.3 is satisfied.
Finally, Assumption 4.1.5 holds true for both methods, because F(X)
is monotone, as defined by (7.215)-(7.216), according to Proposition 4.2.
•
7 .8 Numerical Results
In this section we present numerical results for the Euler and Heun meth-
ods applied for the computation of traffic network equilibrium problems
with known travel demand functions. We also provide some numerical
results for a projection method. In Section 7.6.1 we consider the compu-
tation of solutions to small-scale problems, whereas in Section 7.4.2 we
consider the computation of solutions to problems of a larger scale.
The numerical examples in this section can be viewed as the "inverse"
problems of those computed in Sections 7.4.1 and 7.4.2 in that the user
link cost functions are the same as in the preceding examples for the
corresponding problems but now we assume that, instead of being given
the travel disutility functions that were assumed to be linear and of
the form (7.132), we now assume that we are given the travel demand
functions, where
(7.250)
where recall that m w , qw > 0, for all w.

was the IBM SP2 at the Cornell Theory Center. The CPU times are
reported exclusive of input, output, and setup times.
The algorithms were initialized with the travel demand for each OlD
pair set equal to 100 and the demand equally distributed among the
paths connecting each OlD pair and the travel disutility for each OlD
pair was set to 1. The convergence criterion utilized was: IX;+l_X;)1 ~ (,
for all paths p, and IA~+I - A~I ~ c, for all OlD pairs w, with ( = .001
and (' = .01.
7.S.1 Small-Scale Examples

network equilibrium problems with known travel demand functions. In
particular, we considered two examples.
7.B.1.1 An Example with Linear Functions

We now describe the construction of the first small-scale example.

The first numerical example for this model consisted of the same
network topology as Example 7.2 (d. Figure 7.2) and the same user link
cost functions and the same OlD pair. The paths were defined in the
same manner. However, we assumed that, rather than being given the
travel disutility function:
we were given the inverse function, that is, the demand function:
Interestingly, although the user cost functions and the travel disu-
tility function are linear and separable, there is no longer an equivalent
optimization reformulation of the traffic network equilibrium conditions,
in contrast to the example of Section 7.4.1.1.
The {aT} sequence used was: {I,!,!, i, i, i, ... }.
With this se-
quence, the Euler method converged in 167 iterations and .00 CPU sec-
onds to the identical equilibrium path flow and link load pattern as in
Example 7.2, that is,
and
f: = 4, fb = 2, f; = 2, fJ = 4, f: = 2.
The Euler method computed the equilibrium travel disutility:
Note that
dWl(A~l) =6 = LX;.
pEP"'l
We then applied a projection method to this example, by replacing
{aT} in expressions (7.147) and (7.148) with p. This projection method
is, again, a projection method in path flow variables. The projection
method exhibited no convergence in 500,000 iterations for p set to 1
and for p set to .1. When p was reduced to .01, this projection method
converged in 600 iterations and .01 CPU seconds.

We subsequently considered the solution of a small-scale example in
which the user link cost functions were no longer linear and separable.
In particular, in this subsection we considered the solution of an
example with the same user link cost functions as Example 7.3 and with
the network topology depicted in Figure 7.2. The O/D pairs were also
the same, and the paths were enumerated as in Example 7.3. However, as
in the preceding example, we now assumed that we were given the travel
demand functions, rather than the travel disutility functions. Hence, the
inversion of
AWl ( dWl ) = -5dwl + 1000
yielded the travel demand function:
and the inversion of:
yielded the travel demand function:
We used the sequence: {aT }={1,!,!,~,~,~, ... }. With this se-

quence, the Euler method converged in .04 CPU seconds and 959 it-
erations to the solution:
For O/D pair WI:
X;l = 1.66, X;2 = 35.67, X;3 = 35.67,

and the travel disutility:
A: l = 637.19
and with induced equilibrium path travel costs:
Note that
dW1 (>':1) = 72.56, whereas L x; = 72.99.

pEPW1
For O/D pair W2:

>':2 = 497.05,
and with equilibrium path travel costs:
Here,
L x; = 1.67.
pEPW2
f: = 38.41, fb = 36.25, f; = 37.33, fJ. = 35.67, f: = 2.74.

It is worth noting that this link load pattern is almost identical to
the link load pattern computed for Example 7.3, as one would expect.
The Heun method, on the other hand, with the same {aT} sequence
required 1,720 iterations for convergence and .16 CPU seconds. We also
applied the projection method. It exhibited no convergence with p set
to either 1 or .1 in 500,000 iterations. With p set to .01, this projection
method converged in 1,168 iterations and .08 seconds of CPU time.

The transportation networks that we considered in this subsection were
constructed, respectively, from Examples 7.4 and 7.5, where, as in the
preceding section, we inverted the travel disutility functions to obtain
the travel demand functions.
This network example is depicted in Figure 7.3 and the user link
cost functions are as described in Example 7.4, as are the O/D pairs.
However, we assumed, as given, the demand functions (see Example 7.4)

where:
1 1000
dW4 (Aw4 ) = -(jAW4 + -6-'
1 1
dws(Aws) = -10Aws + 500, dW6 (Aw6) = -10Aw6 + 200,
1 1
dW7 (Aw7) = -SAw7 + 200, dws(Aws) = -4Aws + 500.
We applied the Euler method with {aT }=.1{1,!,!,~,~,~, ... }. The
Euler method converged in 27,496 iterations and 19.38 CPU seconds.
The Heun method converged in the same number of iterations with the
same sequence, but required 39.21 CPU seconds. The projection method,
in turn, did not converge with a p set to either .1 or .01 in 50,000 iter-
ations but did converge in 30,004 iterations and 21.38 seconds of CPU
tme when p was set to .001.
The next larger-scale example that we solved is depicted in Figure
7.4 and with user link cost functions and O/D pairs as given in Example
7.5. to further complete this example we inverted the travel disutility
functions given in Example 7.5 to obtain the following travel demand
functions:
1 1
dW3 (Aw3 ) = -10Aw3 + 200, dW4 (A w4 ) = -SAw4 + 1200,
1 8000 1 7000
dws(Aws) = -""jAws + -7-' dW6 (Aw6) = -gAW6 + -9-'
We applied both the Euler method and the Heun method for the solu-
tion of this problem. With the sequence {aT} set to .1{1,!,!,~,~, .... }
the Euler method converged in 31.76 seconds of CPU time and 34,821
iterations, whereas the Heun method converged in 34,805 iterations and
64.80 seconds.

Two travel adjustment processes have been presented in this chapter to
address the dynamic extension of static elastic demand transportation
models with, respectively, known travel disutility functions and known
demand functions. Elastic demand traffic problems date to Beckmann,
McGuire, and Winsten (1956) and are well-known in the literature. Ad-
ditional background and references on static traffic network equilibrium
models with elastic demands and their mathematical formulations as
variational inequality problems can be found in Nagurney (1993).
Mathematical modeling of dynamic traffic problems, along with the
behavioral intuition, stability analysis of the adjustment process, con-
vergence of the discrete time algorithms, and the numerical performance
of the algorithms are the principal concerns of this chapter. The notable
feature of the algorithms is that they allow for closed form solutions at
each iteration. Moreover, they are ideally suited for massively parallel
implementations on advanced computer architectures.
The dynamic models presented in this chapter lay the theoretical
foundation for studying the day-to-day travelers' behavior in the adjust-
ment of their travel route choices, associated with the dynamic economic
interaction, through the travel demands, to the transportation system
itself. Smith (1984) proposed a different dynamical system to model the
day-to-day adjustment behavior of the users of a transportation network
with fixed demands, and provided its global stability properties.
Throughout this chapter, we have assumed that there is some traffic
equilibrium for the static traffic network assignment problems, since this
is not our concern here. However, we note that an analogous proof to
that of Proposition 6.1 can establish the existence of a traffic network
equilibrium according to Definition 7.1, provided that the link cost func-
tions are regular (Definition 7.10). Similarly, one can prove that there
exists some equilibrium flow and disutility pattern defined by (7.137) and
(7.138) under Assumption 7.1. An alternative condition was suggested
earlier by Dafermos and Nagurney (1984) that guarantees the existence
of the equilibria.
Further readiI~gs on dynamic traffic network modeling can be found
in the book by Ran and Boyce (1994).
Section 7.1
The projected dynamical system model (7.14)-(7.15) of this section
was first proposed by Dupuis and Nagurney (1993). Dafermos (1982)

introduced the elastic demand traffic network equilibrium model with
known travel disutility functions and formulated the governing equilib-
rium conditions as a variational inequality problem. Therein she also
proposed a projection method, but in link load, rather than path flow
variables.
Section 7.2
The results in this section were reported earlier in Zhang and Nagur-
ney (1995a), who were the first to address the local stability of a traffic
network equilibrium in a dynamical context. The concept of a regular
Wardropian equilibrium was also introduced in that paper.
The subject of global stability has been empirically studied by Mah-
massani (1990), who investigated the behavior of the commuters in ad-
justing their route choices on a simulated traffic network.
Section 7.3
The convergence of the Euler and the Heun methods for the compu-
tation of stationary points of the projected dynamical systems model of
elastic demand traffic with known travel disutility functions is first re-
ported here. The convergence analysis depends crucially on the stability
analysis results of the preceding section.
Section 7.4
The numerical examples presented here have not been previously
reported.
Section 7.5
Dafermos and Nagurney (1984) presented both path flow and link
load variational inequality formulations of the elastic demand model with
known demand functions. Additional material on this problem can be
found in Nagurney (1993). The variational inequality formulation that
we present is distinct from these references. The projected dynamical
systems model was reported earlier in Zhang and Nagurney (1995b).
Friesz, Bernstein, Mehta, and Tobin (1994) proposed a dynamic
model of traffic. However, that model could not handle path flows on the
boundary, that is, path flows that are zero, which is required in practical
applications.
Section 7.6
Sensitivity analysis for the elastic demand model with known de-
mand functions was conducted by Dafermos and Nagurney (1984) using
perturbative analysis of the variational inequality problem.
The results in this section were reported earlier in Zhang and Nagur-
ney (1995b).
Section 7.7
The convergence of the algorithms makes critical use of the stabil-
ity results of Section 7.6. The results herein were reported earlier in
Zhang and Nagurney (1995b). Assumption 7.1 is sufficient to ensure the
existence of the equilibrium flow and disutility pattern.
Section 7.8
The numerical examples are taken from Zhang and Nagurney (1995b).
References
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the dynamic traffic assignment problems," Transportation Science 12
(1978a) 183-199.
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(1995b ).
Chapter 8
Fixed Demand Traffic

Equilibrium
Fixed demand traffic network equilibrium problems, in contrast to elas-

tic demand traffic network equilibrium problems, which were the topic
of Chapter 7, assume that there is a fixed and known travel demand
associated with traveling between each origin/destination (O/D) pair in
the network.
As mentioned in Chapter 7, early methodological approaches, dating
to Beckmann, McGuire, and Winsten (1956), reformulated the fixed de-
mand traffic network equilibrium problem, under symmetry assumptions
on the user link cost functions, as an optimization problem. It was the
fixed demand model, in the case of more general, asymmetric user link
cost functions, that could also model multimodal traffic problems. The
fixed demand model gave rise to the development of finite-dimensional
variational inequality problems, following Dafermos' (1980), in opera-
tions research, management science, and, more recently, in economics.
In this chapter we focus on the fixed demand traffic network equi-
librium problem. In contrast to the elastic demand models of Chapter
7, the feasible set underlying this problem is no longer the nonnegative
orthant. Nevertheless, the discrete time algorithms induced by the gen-
eral iterative scheme of Chapter 4 take on here also very simple forms
for computational purposes.
In this chapter we first recall, in Section 8.1, the path flow and link
load variational inequality formulations of the traffic network equilibrium
conditions, following Smith (1979) and Dafermos (1980). A travel route
267
268 CHAPTER 8. FIXED DEMAND TRAFFIC EQUILIBRIUM
choice adjustment process is then proposed, along with the projected

dynamical systems model.
Section 8.2 develops the stability results for the proposed travel route
choice adjustment process.
In Section 8.3 we propose a discrete time algorithm for the computa-
tion of the solutions to the fixed demand model, in particular, the Euler
method. We also present convergence results. Numerical examples, both
small-scale and larger-scale transportation networks, are then presented
in Section 8.4.
8.1 The Fixed Demand Traffic Model

In this section we briefly review the traffic network equilibrium problem
with fixed demands in which the travel demands associated with traveling
between origin/destination pairs are assumed known. We first present
the path flow and link load variational inequality formulations of the
governing equilibrium conditions in Section 8.1.1 and then the projected
dynamical systems model of the travel route choice adjustment process in
Section 8.1.2. The stationary points of the projected dynamical systems
model coincide with the solutions to the variational inequality problem
in path flow variables.
8.1.1 Variational Inequality Formulations

As in Chapter 7, we consider a network [N, L] of nodes N and directed
links L. Let a, b, etc., denote the links, and let p, q, etc., denote the
paths (routes), which consist of a finite sequence of connecting links
with a certain orientation.
We let w denote an origin/destination (0 /D) pair of nodes of the
network and n the set of all the O/D pairs for the network. We assume
that there are J O/D pairs. Pw denotes the set of all paths connecting
OlD pair w. Finally, let P = UwEO Pw denote the set of all the paths
in the network.
We assume that there are mw paths connecting the O/D pair w, with
the total number of paths in the network being m = L:wEO mw.
Let xp represent the traffic flow on path p. Then a traffic path flow
pattern x is an m-dimensional nonnegative column vector that can be
written as
8.1. THE FIXED DEMAND TRAFFIC MODEL 269
Let d", denote the traffic demand between OlD pair w, which is as-
sumed to be known and fixed. The demand must satisfy
(8.1)
where xp ~ 0, 'ip, that is, the sum of the path flows between an OlD
pair w must be equal to the demand d",.
As previously, we let fa denote the link load on link a, which, in turn,
must satisfy the following conservation of flow equation
(8.2)
where, recall that, 6ap = 1, if link a is contained in path p, and 0,

otherwise.
Expression (8.2) states that the traffic load on a link a is equal to
the sum of all the path flows on paths p that traverse link a.
Let c = {c a , a E L} be the row vector of link costs, with Ca denoting
the user cost of traversing link a.
In general, we assume that the link cost may depend on the flows on
every link, that is,
C = c(J), (8.3)
where c is a given function and f denotes the column vector of link loads.
A user traveling on path p incurs a (path) travel cost Cp satisfying
(8.4)
In other words, the cost of traveling along a path p is equal to the

sum of the link costs of links comprising that path.
Recall, also, that from (8.2), (8.3), and (8.4), one sees that both the
link costs and path costs are functions of the path flow pattern x, and,
hence, one can write the following row vectors
c = c(J(x)) = c(x), (8.5)
C = C(J(x)) = C(x). (8.6)

Following Wardrop (1952) and Beckmann, McGuire, and Winsten
(1956), the traffic network equilibrium conditions are given as follows.
270 CHAPTER 8. FIXED DEMAND TRAFFIC EQ UILIBRIUM
Definition 8.1 (Fixed Demand Traffic Network Equilibrium)

A path flow pattern x*, which satisfies the demand through (8.1), is
a traffic network equilibrium, if, for every DID pair wand each path
pEPw, the following equalities and inequalities hold:
if x*p >0
if x; = 0, (8.7)
where Aw is the travel disutility incurred in equilibrium.
Again, as in the elastic demand models of Chapter 7, in equilibrium,

only those paths connecting an 0 jD pair that have minimal user travel
costs are used, and those paths that are not used have costs that are
higher than or equal to these minimal travel costs. However, here the
demands and travel disutilities are no longer functions.
The equilibrium conditions (8.9) have been formulated as a varia-
tional inequality problem by Smith (1979) and Dafermos (1980). In par-
ticular, we have present two formulations, in path flows and link loads,
respectively:
Theorem 8.1 (Variational Inequality Formulation in Path Flows)

x* E K is a traffic network equilibrium in path flows if and only if it
solves the following variational inequality problem:
(C(x*), x - x*} ~ 0, Vx E K, (8.8)
where K == {x E Rm : x ~ 0 and (8.1) holds }.
Theorem 8.2 (Variational Inequality Formulation in Link Loads)

J* E Kl is a traffic network equilibrium in link loads if and only if it
satisfies the following variational inequality problem:
(c(J*),f - f*) ~ 0 Vf E KI, (8.9)
where Kl == {f : 3x ~ 01(8.1) and(8.2) holds}.
Here we have also presented the link load formulation since we will
utilize it in the numerical Section 8.4 when we present some computa-
tional comparisons.
8.1. THE FIXED DEMAND TRAFFIC MODEL 271

For the above fixed demand traffic assignment problem, we now propose
Suppose that the traffic flows on the paths connecting each olD pair
change at a rate that is proportional to minus the costs on the paths.
The travelers will then continuously switch from more costly routes to
less costly routes. However, in order to maintain feasibility, the model
requires that the path flows remain not only nonnegative, but also, that
they lie in the feasible set K, which requires that the sum of the path
flows connecting each origin I destination pair is equal to the demand.
The travelers between a certain OlD pair will switch from more costly
routes to less costly routes connecting this OlD pair. Thus, it is proposed
that the travelers' incentive to avoid more costly routes will dynamically
adjust the allocation of the path flows among each OlD pair w so that
the sum of the flows equals the travel demand dw • Moreover, each path
flow xp,p E Pw , will remain nonnegative, while, at the same time, being
affected by its own path cost Cp,p E Pw • Therefore, the model proposes
that the traffic flows on the paths change at a rate that is equal to the
projection of minus the path costs onto the constraint set K given in
(8.8), i.e., I1K( x, -C( x)). In fact, this represents the "best" feasible
direction to reallocate the traffic flows in the expectation of reducing the
users' travel costs.
This process continues until there is no change in path flows, namely,
until all used paths have equal travel costs and unused paths have higher
(or equal) travel costs.
x = I1K(X,-C(x)), (8.10)
where, recall that, the projection operator 11K in (8.10) is defined as
II K ( X,V ) = li m (PK (x +f fV) -

(-+0
x)
, (8.11)
with PK being the projection map on RK given by:
(8.12)
A direct application of Theorem 2.4 indicates that the set of the

stationary points of the above travel route choice adjustment process
coincides with the set of traffic network equilibria with fixed demands.
Theorem 8.3
A path flow pattern x* E K satisfies the variational inequality problem
(8.8) if and only if it is a stationary point for the ordinary differential
equation (8.10), that is,
0= IIK(x*, -C(x*)). (8.13)

In this section we study the stability of the previously proposed route
travel choice adjustment process for the fixed demand traffic problem.
The definitions of stability and asymptotical stability of the route
choice adjustment process (8.10) presented below are similar to those
given in Chapter 7.
The route choice adjustment process (8.10) is stable if for every initial
flow pattern, xO and every equilibrium flow pattern, x*, the Euclidean
distance, IIx* - xO(t)11, is a monotone nonincreasing function of time t.
The route choice adjustment process (8.10) is asymptotically stable if
it is stable and for any initial flow pattern, xO, there exists some equilib-
rium flow pattern, x*, such that
XO(t) -+ x*, as t - + 00, (8.14)
where XO(t) solves (8.10) with XO(O) = O.

We now establish the stability and asymptoticaJ stability of the route
choice adjustment process (8.10) under assumptions that the link travel
costs are, respectively, monotone increasing and strictly monotone in-
creasing.
Theorem 8.4
Suppose that the link costs c are monotone increasing in the link load
f. Then the route choice adjustment process (8.10) is stable.
B.2. STABILITY ANALYSIS 273
Proof:
Let x* be any equilibrium path flow pattern according to Definition
8.1, and let xO be an initial path flow pattern.
Define
(8.15)
Then, by Lemma 2.1, we have
D(xO,x*,t) = ((xo(t) - x*l,IIK(xo(t),-C(xo(t))))
= ((xO(t) - x*l, -C(xO(t))) + ((xO(t) - x*l,,B(xO(t))n*(xO(t)))

~ ((XO(t) - x*l, -C(XO(t))) (8.16)
where ,B(xO(t)) ~ 0 is given by (2.18) and n*(xO(t)) is an inward normal
of K at xO(t).
Let fO be the initial link load generated by XO through (8.2), and, in
the same way, let fO(t) be generated by xO(t), and let 1* be generated
by x*. Then, the right-hand side of (8.16) can be expressed as ((l°(t)-
I*l, -c(l°(t))). Since f* is an equilibrium link load, by Theorem 8.2,
we have
(8.17)
therefore,
D(xO, x*, t) ~ ((l°(t) - rl, -c(l°(t)))
~ -((J°(t) - rl, c(J°(t)) - c(J*))
= -Z(xO(t), x*) (8.18)
where Z(x,x*) is as in Chapter 7 (cf. (7.24) and (7.24')), namely,
Z(x,x*) = ((x - x*l,C(x) - C(x*)) = (c(J) - c(l*),f - 1*). (8.19)

Since the link costs c are assumed to be monotone increasing, the right-
hand side of (8.18) is always less than or equal to zero, and, hence
D (xO , x* , t) is monotone nonincreasing. •
The next theorem illustrates that the route travel choice adjustment
process (8.10) eventually drives any traffic flow pattern to an equilibrium
path flow pattern, provided that the link costs are strictly monotone.
This substantial result also contributes in establishing the convergence
of the discrete time algorithm proposed in next section.
Theorem 8.5
Suppose that the link costs c are continuous and strictly monotone
increasing in the link loads f. Then, the route choice adjustment process
(8.10) is asymptotically stable.
Proof:
Since the ,condition of this theorem implies that of Theorem 8.4, the
arguments in the proof of that theorem are all valid here, particularly,
(8.15)-(8.19).
The strict monotonicity of the link costs c now yields
= j*
- Z( xO(t), Xo) { :~: when
when
fO(t)
fO(t) ~ j*,
(8.20)
which, in view of (8.18), means that D(xO, x*, t) is monotone nonincreas-

ing. Let
lim D(xO,x*,t) = D_. (8.21)
t--+oo
If D_ = 0, then xO(t) ~ x*, as t ~ 00, we have the desired result.

Suppose now D_ > O. Denote
So := {x : IIx - x*1I2 = 2D_, Z(x,x*) = O}
S1 := {x : IIx - x*1I2 = 2D_, Z(x,x*) > O}.

Then
8 = 80 U 81 = {x : IIx - X*1I2 = 2D_}
is the sphere centered at x* with radius ~.
For x E 8t, it follows from the continuity of link costs c that there
exists a 6( x) > 0, such that
1
Z(X",X*) > 2'Z(x,x*) > 0, 'VX" E B(x,6(x)),'Vx E 81 . (8.22)
For any € > 0, the same reason implies that there exists a corresponding
open neighborhood Uf of 80, such that
Z(x',x*) <~, 'Vx' E Uf , (8.23)
where 80 C Ufo Then {if = {Uf ,B(x,6(x)),x E 81} is an open cov-

ering of the sphere 8. Since 8 is compact, a finite sub covering Jf =
{Uf ,B(Xi,6(Xi»,i E If} can be chosen from Of' where {xi,i E If} is a
finite subset of SI.
Let
(8.24)
and
iEI.
Then it immediately follows that
"Ix" E ~. (8.25)
In view of (8.21), there is some Tf > 0 so that
(8.26)
Denote
Then
= -21I1xO(Tf)-x*W+j D(xO,x*,r)dr+ f D(xO,x*,r)dr. (8.28)

A.(t) } B.(t)
Using (8.18) and (8.25), one has
f D(xO,x*,r)dr ~ - f Z(xo(r),x*)dr ~ -~vfm(Bf(t». (8.29)

JB.(t) JB.(t) 2
For every 0 jD pair w, denote A~ as the minimal path cost of all the
paths joining w, i.e.,
Also, denote
Q(x*) = {q : 3 wEn I q E Pw , A~ - Cq(x*) < 0 and x; = O}. (8.30)

Then, it follows from the equilibrium condition (8.7) that
;\: - Cp(x*) < 0 if and only if p E Q(x*). (8.31)
Consequently,
rt = pEQ(x*)
min [Cp(x*) - ;\:1 > O. (8.32)
The above arguments yield
((XO(t) - x*?, -C(x*)} =E E (x~(t) - x;)(;\: - Cp(x*))

wEOpEP",
= E x~(t)(;\: - Cp(x*)) ::; -r/* E x~(t), (8.33)

PEQ(x*) pEQ(x*)
where the first equation is implied by the fixed demand condition
LpEP", x~(t) = LpEP", x;, Vw E O.
We claim that, for any f > 0, there is some te E Ae such that
(8.34)
Suppose that this is not true. Then we have
(8.35)
and (8.28) and (8.29) yield
~lIxO(t)-x*1I2::; -21I1xO(Te)-x*1I2--21vem(Be(t))+ f
2 h.w D(xo,x*,r)dr,
(8.36)
which, with notice to inequality (8.16), is followed by
::; ~lIxO(Te) - x*1I2 - ~vem(Be(t)) + f ((xo(r) - x*?, -C(xo(r))}dr.

2 2 JA.(t)
(8.37)
Following (8.23), (8.33), and (8.35), one has, for all t E A e ,
((XO(t) - x*f, -C(xO(t))}
=((xo(t) - x*f, -C(x*)} - ((xO(t) - x*?, C(xo(t)) - C(x*)}

B.2. STABILITY ANALYSIS 277
~ -rt L: x~(t) - Z(xO(t),x*) ~ -f. (8.38)

pEQ(x*)
Applying (8.38) to (8.36) and (8.37), we obtain
1 1 1_
2I1xO(t) - x*1I2 ~ 2I1xO(Tf) - x*1I2 - 2vfm(Bf(t)) - €m(Af(t))
~ - min{~Vf7 €}[m(Af(t) + Bf(t)] = - min{~Vf7 €}(t - Tf ). (8.39)

However, this is impossible, because the left-hand side of (8.39) is always
nonnegative and the right-hand side of (8.39) becomes negative when t
is sufficiently large. This contradiction verifies our claim (8.34). It is
now clear that there exists a squence {tk}, such that
tk E A 1Ie , tk - 00, as k - 00 (8.40)
and
L: X~(tk)</*'
qEQ(x*) 'TJ
(8.41)
Since {X°(tk), k = 1,2" .. } is bounded, it has a convergent subsequence.

Without loss of the generality, we may assume it itself is convergent and
(8.42)
It follows from (8.40) that X°(tk) E U1, \/k, and, hence, by (8.23)
Ie
Z(XO(tk),X*) < 21k' \/k. (8.43)
Since Z(x, x*) is continuous in x, (8.43) implies
Z(x,x*) = 0,
that is,
((1- f*l, c(1) - cU*)} = O. (8.44)
By the stict monotonicity of c, (8.44) ensures that 1 = f*, and, therefore,
c(l) = c(f*), C(x) = C(x*). (8.45)
On the other hand, (8.41) implies that
L: Xq =0
qEQ(x*)
and, hence,
Xq = 0, Vq E Q(x*). (8.46)
Combining (8.45) and (8.46), we conclude that
(8.47)
and for every wEn, p E Pw ,
(8.48)
In addition to the fact that the projected dynamical system has ensured
x ~ 0, (8.47) and (8.48) show that x is an equilibrium path flow pattern.
Since x* as an equilibrium flow pattern is arbitrarily chosen, (8.15)-
(8.18) must hold true with x* replaced by x, namely, D(xO, x, t) is mono-
tone decreasing in time t. In view of (8.42), it follows that
D(xO,x,t) -- 0, as t -- 00. (8.49)
In other words, the route choice adjustment process starting at initial

flow pattern xO converges to some equilibrium flow pattern x. The proof
is complete. •

We now consider a special case of the general iterative scheme proposed
in Chapter 4, in particular, the Euler method.
Recall that, according to the Euler method, at iteration T, one must
compute
(8.50)
In the case that the sequence {a 7.} in the Euler method (cf. (8.50)) is
fixed, say, {aT} = p, for all iterations T, then the Euler method collapses
to a projection method, as discussed in Chapter 4.
In the context of the traffic network equilibrium problem with fixed
travel demands, the projection operation can no longer be computed in
closed form, but, rather, is the solution to a quadratic programming
problem. Nevertheless, because of the special structure of the resulting
subproblems, each of them can be computed using an "exact" equilibra-
tion algorithm proposed by Dafermos and Sparrow (1969).
In particular, at each iteration r of the Euler method, (8.50) takes

the form: Compute the vector of path flows x T +1 according to:
XT+l = min ~xT . x - (x T - aTF(xT)l· x. (8.51)

xEK 2
In view of the feasible set K, subproblem (8.51), in turn, can be

decomposed into J subproblems, one for each O/D pair w, each of which
is a quadratic programming problem with special structure that can be
solved exactly and in closed form using exact equilibration. In particular,
subproblem (8.51) is equivalent to the solution of: For each OlD pair w,
compute:
(8.52)
subject to:
(8.53)
and
(8.54)
where
(8.55)
Note that in the above subproblem (8.52)-(8.55), the network sub-
problem that is actually solved takes place on a network, in view of
constraints (8.53) and (8.54), has disjoint paths, that is, the paths con-
necting each O/D pair have no links in common. This is a remarkable
feature of the Euler method in path flow variables.
For completeness, and easy reproducibility, we here give the exact
equilibration algorithm, which is used to solve the quadratic program-
ming problems at each iteration of the Euler method and of the projec-
tion method in path flow variables in the numerical Section 8.4. The
iteration counter r is suppressed below.
Exact Equilibration Algorithm for OlD pair w
Step 0: Sort:
Sort the fixed cost terms, hp, p E Pw , in nondescending order, and
relabel the hp's accordingly. Assume, henceforth, that they are relabled.
Set hmW+l =00. Set p = 1.
Step 1: Computation
Compute:
(8.56)
Step 2: Evaluation:
If hp < hp+b then stoPj set q = p, and go to Step 3. Otherwise,
).~ ~
let p := p + 1, and go to Step 1.
Step 3: Update:
Set
xp = ).~ - hpj p = 1, ... , q, (8.57)
xp=Oj i=q+1, ... ,mw. (8.58)
This equilibration algorithm is to be contrasted with the general equi-
libration algorithm of Dafermos and Sparrow (1969), which does not as-
sume that the paths connecting an O/D pair have no links in common.
This "general" equilibration algorithm (see, also, e.g., Nagurney (1993»
will be embedded in the projection method in link load variables in Sec-
tion 8.4 to solve the resulting quadratic programming problems at each
iteration.
To conclude this section, the following theorem provides the conver-
gence of the proposed Euler method in the context of the fixed demand
traffic network problem.
Theorem 8.6
Suppose that the link costs c are strictly monotone increasing. Let
{a7"} be a sequence of positive real numbers that satisfies
lim a7"
7"-+00
=0 (8.59»
and 00
La7" = 00. (8.60)

7"=1
Then the Euler method given by

x7"+1 = PK(X7" - a7"C(x7"», (8.61)
where C (x) is the vector of path travel costs and K = {x E Rm : x ~

o and (8.1) holds} converges to some traffic network equilibrium path
flow pattern.
Proof:
According to Theorem 4.1, the sequence {X7"} generated by (8.61)
converges to some solution to the variational inequality problem (8.8),
provided that the Assumption 4.1 is satisfied. Consequently, by taking
advantage of Theorem 8.1, it converges to some equilibrium path flow
pattern.
Notice that Assumption 4.1.1 is already met by the chosen sequence
according to (8.59) and (8.60). Assumption 4.1.2 is satisfied because
C(x) is continuous and CT = C. By Theorem 8.5, the route choice
adjustment process is asymptotically stable, and, hence, every w-limit
point of the projected dynamical system (8.10) is an equilibrium path
flow pattern. This verifies Assumption 4.1.3. Assumption 4.1.4 becomes
trivial, with notice to the fact that the feasible set K is compact in the
fixed demand model. Finally, Assumption 4.1.5 holds true according to
Proposition 4.2, since -C( x) is monotone . •

In this section we present numerical results for the Euler method ap-
plied for the computation of fixed demand traffic network equilibrium
problems. We also provide some numerical results for two projection
methods, one in path flow variables, and the other, in link load variables.
In Section 8.4.1 we consider the computation of solutions to small-scale
problems, whereas in Section 8.4.2 we consider the computation of so-
lutions to problems of a larger scale. For the solution of the embedded
quadratic programming problems in both the Euler method and the pro-
jection method, we utilized the exact equilibration algorithm described
in Section 8.3. For the solution of the embedded quadratic programming
problems encountered in the projection method in link load variables,
we used the general equilibration algorithm (d. Dafermos and Spar-
row (1969) and Nagurney (1993)). All the algorithms were initialized
identically and utilized the same convergence criterion with the same
convergence tolerance.
for the numerical work was the IBM SP2 located at the Cornell Theory
Center. The CPU times are reported exclusive of input/output times
and setup times.
The algorithms were initialized, except where noted, with the travel
demands for each O/D pair equally distributed among the paths con-
necting each O/D pair. The convergence tolerance f was set to .001 for
all the examples. The convergence criterion utilized was: Ix;+l- I ~ f, x;
for all paths p.
8.4.1 Small-Scale Examples

network equilibrium problems with fixed travel demands. In particular,
we considered the solution of two examples, the first consisting of linear
user link cost functions, whereas the second example had user travel
link cost functions that were nonlinear and asymmetric. Both of these
examples had a network topology depicted in Figure 7.2. However, now,
in contrast to the numerical examples in Section 7.4.1, the demands were
fixed.
8.4.1.1 An Example with Linear Functions

Here we considered a traffic network equilibrium problem in which the
user link cost functions (d. (8.3)) were linear and separable, and in den-
tical to the form given by (7.131), that is, of the form:
(8.62)
Following Proposition 2.3, the traffic network equilibrium problem

in this case can be reformulated as the following optimization problem,
with the use of (8.2):
(8.63)

The transportation network example, depicted in Figure 7.2, con-
sisted of 4 nodes, 5 links, and a single OlD pair WI = (1,4). Recall that
the user link cost functions were given by:
Ca(fa) = lOla, Cb(fb) = Ib + 50, ce(fe) = Ie + 50,

cd(fd) = 101d, ce(fe) = Ie + 10.
Unlike, Example, 7.2, however, we assumed that we were given the

travel demand:
dW1 = 6.
This is the Braess (1968) network.
Recall that the paths joining O/D pair WI were:
PW1 = {P}'P2,P3}, PI = {a,e}, P2 = {a,e,d}, P3 = {b,d}.

We initialized the Euler method with all the travel demand on path
Pl·
The {aT} sequence used was: {1,~,~,~,~,~, ... }. The Euler method
converged in 9 iterations and .00 CPU seconds to the path flow equilib-
rium solution:
with induced link loads:
f: = 4, fb = 2, f; = 2, fJ. = 4, f: = 2.
The equilibrium path travel costs were:
The path flow iterates generated by the Euler method are given in
Table 8.l.
The iterates are also displayed graphically in Figure 8.l.
We also implemented the projection method in path flow variables
by fixing the sequence {aT} to p for all iterations. We first set p = 1
and did not observe convergence of the projection method in 500,000
iterations. We then set p = .1, and the projection method converged to
the equilibrium solution in 14 iterations and .00 CPU seconds.
The numerical example in this subsection illustrates yet another ap-
plication of the use of an algorithm induced by the general iterative
scheme of Chapter 4 to solve an optimization problem.

We then considered the solution of a nonlinear and asymmetric example,
with the same network topology as the network depicted in Figure 7.2,
but with two origin/ destination pairs. The user link travel cost functions
were identical to those of Example 7.3, as were the enumerated paths.
284 CHAPTER 8. FIXED DEMAND TRAFFIC EQ UILIBRIUM.
Table 8.1: Iterates generated by the Euler method for the Braess network
Iteration T x'Vl
T x'EL
T x'P3
T
0 6.000 0.000 0.000

1 0.000 3.000 3.000
2 4.333 0.833 0.833
3 0.963 2.519 2.519
4 2.461 1.770 1.770
5 1.795 2.102 2.102
6 2.017 1.991 1.991
7 1.999 2.001 2.001
8 2.000 2.000 2.000
9 2.000 2.000 2.000
6.-----------------------------------------~
4
(IJ
~
o
c;: 3
L
o
[L
2 3 4 5 6 7 8 9
Iteration Nurnber
1---- Flow on p 1 -+- Flow on p2 -+- Flow on p3 1

Figure 8.1: Graphical display of iterates of the Euler method for the
Braess network
Example 8.2 (c!. Example 7.3)

Recall that the O/D pairs for this problem were:
WI = (1,4), W2 = (1,3).
The travel demand were assumed now to be fixed and given by:
Recall that the paths joining O/D pair WI were:
PW1 = {PbP2,P3}, PI = {a,e,d}, P2 = {a,e}, P3 = {b,d},
whereas the paths joining O/D pair W2 were:
The sequence {aT} used was: .1{1,!,!,l,l,l, ... }. With this se-
quence the Euler method converged in 17 iterations and .00 CPU seconds
to the solution:
For O/D pair WI:
X;l = 1.34, X;2 = 36.75, X;3 = 36.91.

CP1 (x*) = 669.69, C p2 (x*) = 669.59, Cp3 (x*) = 669.65.
For O/D pair W2:
The induced link loads were:
f; = 39.45, fb = 37.55, f; = 36.75, fJ = 38.25, f: = 2.70.
The iterates of path flows generated by the Euler method are given
in Table 8.2.
These same iterates are displayed graphically in Figure 8.2.
Table 8.2: Iterates generated by the Euler method for a nonlinear, asym-
metric cost network
Iteration T x'T
'PI
x'T
'P2
x'T
'P3
x'T
'P4
x'T
'P5
0 75.000 0.000 0.000 2.000 0.000
1 0.000 28.987 46.013 0.000 2.000
2 3.319 39.364 32.317 2.000 0.000
3 0.832 35.029 39.138 0.000 2.000
4 1.898 36.920 36.182 2.000 0.000
5 1.345 36.409 37.247 1.191 0.809
6 1.472 36.724 36.804 1.476 0.524
7 1.394 36.683 36.923 1.378 0.622
8 1.379 36.707 36.914 1.375 0.625
9 1.367 36.721 36.911 1.370 0.630
10 1.359 36.732 36.909 1.367 0.633
11 1.354 36.737 36.908 1.365 0.635
12 1.351 36.742 36.907 1.364 0.636
13 1.348 36.745 36.907 1.362 0.638
14 1.346 35.748 36.906 1.362 0.638
15 1.344 36.750 36.906 1.361 0.639
16 1.343 36.751 36.906 1.361 0.639
17 1.343 36.752 36.906 1.360 0.640
80
I
70
60
(/) 50
~
~
0
G: 40
:£
,i' 30
20
10 f
0
0
:L~
2
---4 6 8 10 12 14 16 18
Iteration Number
----- Flow on p 1 --+- Flow on p2 --+- Flow on p3

~ Flow on p4 ---*- Flow on p5
Figure 8.2: Graphical display of iterates generated by the Euler method

for a nonlinear, asymmetric network
We also implemented the projection method in path variables for this

example and the projection method in link load variables (cf. Dafermos
(1980)). The projection method in path flow variables did not converge
in 500,000 iterations when p was set to .1. When p was set to .01, this
projection method converged in 76 iterations and .01 CPU seconds.
We applied the projection method in link load variables (cf. (4.10)
and (4.11), in which the G matrix was set equal to the Jacobian of the
link user cost functions, evaluated at the initial link load pattern. When
p was set to .1, the projection method in link load variables converged in
58 iterations and .00 CPU seconds; when p was set to .01, it converged
in 224 iterations and .01 CPU seconds.

The transportation networks that we considered here were of a scale
larger than those in Section 8.4.1. These examples were constructed
from the network examples in Section 7.4.2.

The first larger-scale example consisted of 20 nodes, 28 links, and
8 OlD pairs, and is depicted in Figure 7.3. The user link cost func-
tions were identical to those of Example 7.4. The OlD travel demands,
however, were fixed, and given by:
dW1 = 100, dW2 = 200, dW3 = 50, dW4 = 100,

dW5 = 90, dW6 = 1, dW7 = 100, dW8 = 50.
The Euler method converged in 2,847 iterations and 2.47 CPU sec-
onds when the sequence {aT }=.001{1,~,~, 1, 1, ... }
was used. The pro-
jection method in link load variables converged in 10,984 iterations and
47.74 CPU seconds when p was set to .001. This projection method con-
verged in 1,979 iterations and 18.33 CPU seconds when p was set to .01.
When p was raised to .1, the projection method in link load variables
converged in 279 iterations and 4.7 CPU seconds. We also applied the
projection method in path flows variables. This method did not exhibit
convergence with p set to .1, .01, or .001.
We now present the equilibrium pattern computed by the Euler
method in summarized form. In particular, the computed link load pat-
tern was:
1: = 139.65, 12 = 233.84, I; = 178.22, I: = 225.97,
I; = 220.04, 16 = 310.04, J; = 236.96, I; = 236.73,

I; = 107.68, 1:0 = 160.35, 1:1 = 56.81, 1:2 = 105.63,
1:3 = 52.24, 1:4 = 5.94, 1:5 = 0.00, 1:6 = 73.08,
1:7 = 0.23, 1:8 = 129.04, 1:9 = 107.68, 120 = 160.35,
121 = 217.16, 122 = 222.78, 123 = 225.03, 124 = 230.96,
125 = 230.96, 126 = 254.04, 127 = 254.27, 128 = 93.32.
Three of the six paths connecting OlD pair WI were used and these
had travel costs approximately equal to 778,175. Six of the nine paths
connecting OlD pair W2 were used and these had travel costs approx-
imately equal to 774,681. Four of the six paths connecting OlD pair
W3 were used and these paths had costs equal to approximately 371,765.
Five of the seven paths connecting OlD pair W4 were used with path
travel costs equal to approximately 615, 045. Three of the four paths
connecting O/D pair Ws were used with travel costs approximately equal
to 387,041. Only one of the nine paths connecting O/D pair W6 was used
with a travel cost of: 757,491.31. Both paths connecting OlD pair W7
were used with travel costs approximately equal to 92,636. Both paths
connecting O/D pair W8 were also used with travel cost on a path equal
to, approximately, 52,977.
Example 8.4 (cr. Example 7.5)
The next larger-scale example, depicted in Figure 7.4, consisted of
25 nodes, 37 links, and 6 O/D pairs and had link user cost functions
identical to those of Example 7.5. The travel demands for the O/D
pairs, however, were fixed, and were given by:
dW4 = 65, dW5 = 125, dW6 = 50.

The Euler method converged in 209 iterations and .25 CPU seconds.
We utilized the sequence: {aT }=.001{1,!,!,~,~,~, ... }.
The projection method in link load variables converged in 8,857 iter-
ations and 29.19 CPU seconds when p was set to .001; in 1,912 iterations
and 9.24 CPU seconds when p was set to .01, and in 287 iterations and
2.05 CPU seconds when p was set to .1. The projection method in path
flows variables did not converge in a reasonable timeframe when p was
set to .001, .01, or to .1.
We now provide the equilibrium results in summary form.
J: = 123.59, I; = 164.24, I; = 154.89, It = 144.18,
I; = 98.64, I~ = 98.64, 1; = 98.64, I; = 98.64,

I; = 98.64, J:o = 201.41, J:l = 59.35, J:2 = 74.35,
J:3 = 10.70, J:4 = 45.54, I~s = 0.00, J:6 = 0.00,
J:7 = 0.00, J:8 = 0.00, J:9 = 98.64, 1;0 = 142.48,
1;1 = 150.82, 1;2 = 192.21, 1;3 = 143.88, 1;4 = 101.36,
I;s = 101.36, 1;6 = 101.36, 1;7 = 101.36, 1;8 = 101.36,
1;9 = 108.93, 1;0 = 51.01, 1;1 = 32.97, 1;2 = 59.03,
/33 = 88.06, /34 = 108.93, /35 = 159.93, /36 = 192.90,

/37 = 126.94.
Five of the ten paths connecting O/D pair WI were used and these had
travel costs equal to approximately 107,070. Twelve out of the fifteen
paths connecting O/D pair W2 were used and these had user travel costs
approximately equal to 85,204. Only four out of the nine paths connect-
ing O/D pair W3 were used and these had path travel costs approximately
equal to 93,970. All six paths connecting O/D pair W4 were used and
the paths had travel costs approximately equal to 49,290. Seven out of
the ten paths connecting O/D pair W5 were used with travel costs ap-
proximately equalt 0 68,447. Finally, four out of the six paths connecting
o /D pair W6 were used and these had travel costs equal to approximately
83,525.

A travel adjustment process was proposed in this chapter to address
the dynamic extension of the static fixed demand transportation model.
The fixed demand model is interesting in that, unlike the elastic demand
models of Chapter 7, the feasible set is no longer the nonnegative orthant,
but also consists of linear constraints that express the fixed demand and
path flow relationships.
This chapter is a companion chapter to Chapter 7 and, hence, addi-
tional references may be found therein.
Section 8.1
The route travel adjustment process and its projected dynamical sys-
tem, in the case of fixed travel demands, were first proposed by Nagurney
and Zhang (1995).
Dafermos (1980) identified that the formulation of Smith (1979) of
the fixed demand traffic network equilibrium conditions satisfied a finite-
dimensional variational inequality problem. Therein she also proposed a
projection method, but in link load, rather than path flow variables.
Section 8.2
The results in this section were reported earlier in Nagurney and
Zhang (1995).
Section 8.3
The convergence of the Euler method for the computation of station-
ary points of the projected dynamical systems model of fixed demand
traffic was reported earlier in Nagurney and Zhang (1995). The con-
vergence analysis depends crucially on the stability analysis results of
the preceding section. The Euler method works in the space of path
flows, rather than link loads, and resolves the problem into very simple
quadratic programming problems with special network structure. Each
of the network subproblems, in turn, can then be solved exactly, and
in closed form, using the exact equilibration algorithm of Dafermos and
Sparrow (1969). Moreover, the Euler method is ideally suited for ex-
ploitation of massively parallel computer architectures.
Section 8.4
The numerical examples presented here were reported earlier in Nagur-
ney and Zhang (1995). The computational comparisons include com-
parisons of the Euler method with the projection method in link load
variables of Dafermos (1980). Additional algorithms for the solution of
variational inequality formulations of traffic network equilibrium prob-
lems can be found in Nagurney (1993).
References
Beckmann, M. J., McGuire, C. B., and Winsten, C. B. Studies in the
Economics of Transportation, Yale University Press, New Haven,
Connecticut, 1956.
Braess, D., "Uber ein paradoxon der verkehrsplanung," Unternehmen-
forschung 12 (1968) 258-268.
Dafermos, S., and Sparrow, F. T., "The traffic assignment problem for
a general network," Journal of Research of the National Bureau of Stan-
dards 73B (1969) 91-118.
Nagurney, A., "Comparative tests of multi modal traffic equilibrium meth-
ods," Transportation Research 18B (1984) 469-485.
proach, Kluwer Academic Publishers, Boston, Massachusetts 1993.
Nagurney, A., and Zhang, D., "Projected dynamical systems in the for-
mulation, stability analysis, and computation of fixed demand traffic
network equilibria," School of Management, University of Massachusetts,

Amherst, Massachusetts, 01003, 1995.
Smith, M.J., "Existence, uniqueness and stability of traffic equilibria,"
Transportation Research l3B (1979) 259-304.
Wardrop, J. G., "Some theoretical aspects of road traffic research," in
378,1952.
Index
adjustment process: Braess network, 228-229, 283
Cournot-Nash, 101-102 closed form solution, 77
spatial price: complementarity problem, 14
in quantities, 138-139 continuous dependence, 24
in quantities and prices, 167- convex polyhedron, 18
168 Cournot-Nash equilibrium, 97
traffic:
differential inclusion, 41, 87, 129
in path flows, 202, 271
discrete time algorithms:
in path flows and disutili-
Euler method, 75, 79
ties, 239
Cournot-Nash, 118
algorithms:
spatial price, 148, 169
discrete time, 75-81 elastic demand transporta-
Euler, 75, 79 tion, 221, 248
Heun, 75, 79 fixed demand transporta-
Runge-Kutta, 75, 80 tion, 278
exact equilibration, 279-280 Heun method, 75, 79
general iterative scheme, 76 alternative Heun method,
of Dafermos, 78 80
projection method, 78-79 elastic demand transporta-
in link loads, 287 tion, 221-222, 248-249
in path flows, 221, 287 Runge-Kutta method, 80
alternative Heun method, 80 alternative Runge-Kutta method,
alternative Runge- K utta method, 81
81 dynamical system:
asymptotically stable, 49 classical, 20-22
attractor: projected, 19-20
finite-time, 50 existence theorems, 24
monotone, 49 uniqueness theorems, 24,
global, 49 31-32
strictly, 50 elastic demand traffic problems:
293
294 INDEX
with known disutility func- game theory, 91, 94

tions, 199-236 general iterative scheme, 76
with known travel demand of Dafermos, 78
functions, 236-260 global Newton method, 87
equilibration algorithms: gradient-like condition, 83
exact, 279-280 Gronwall's inequality, 25
general, 280 Hamiltonian system, 87
equilibrium point, 20 Heun method, 79
asymptotically stable, 49 elastic demand transportation,
exponentially stable, 49 221-222, 249
stable, 47 alternative Heun method, 80
unstable, 47
equilibrium programming, 87 induced governing function, 54
Euler method, 75, 79 induced minimal face flow, 54
oligopolies, 118 initial value problem, 19
inward normal, 17-18
spatial price, 148, 169
elastic demand transportation, Liapunov function, 72
221,248 limit cycle, 83
fixed demand transportation, linear growth condition, 24
278 linear programming, 87
excess price, 138 Lipschitz continuity, 25
existence theorems: massively parallel, 153
Cournot-Nash equilibrium, 100 market clearing, 166
projected dynamical system, minimal face flow, 54
24 at Cournot-Nash equili brium,
spatial price equilibrium, 149, 114
174 at spatial price equilibrium,
traffic equilibrium, 261 145
variational inequality, 15, 16 monotone attractor, 49
exponentially stable, 49 global, 49
global, 49 monotonicity approach, 67-72
face, 53 monotonicity conditions, 15-16
minimal, 53 strict monotonicity, 15
minimal face flow, 54 strong monotonicity, 15
finite- time attractor, 50 strong monotonicity with de-
fixed demand traffic problems, 267- gree ll, 71
290 Nash equilibrium, 97
fixed point problem, 14 network:
INDEX 295
bipartite, 137 quadratic programming problem,

Braess, 228-229, 283 77, 279
disjoint paths, 279
regular:
transportation, 217,228,232,
Cournot-Nash equilibrium, 113
235
spatial price equilibrium, 144
network equilibrium, 201, 237, 270
traffic network equilibrium,
nonlinear equations:
213
relationship to variational in-
regular link cost function, 222
equality problem, 13
regular solution, 56
relationship to classical dy-
regularity approach, 52-67
namical system, 22-23
relative boundary, 55
normal cone, 12, 55
relative interior, 55
oligopolistic equilibrium, 97-98 right-hand side:
classical, 98-99 continuous, 19
spatial, 97-98 discontinuous, 19
one-step method, 75 Runge-Kutta method; 80
alternative Runge-Kutta me-
parallel architectures, 153
thod, 81
parallel computation:
spatial price equilibrium prob- scarce resources, 9
lems, 156-164, 182-194 Skorokhod Problem, 10, 29-30
projected dynamical system, 19- spatial oligopoly, 93-97
21 spatial price equilibrium:
relationship to variational in- in quantities, 136
equality problem, 22-23 in quantities and prices, 165-
projected dynamical system mod- 166
els: stable equilibrium point, 47
oligopolies, 101 stability analysis:
spatial price problems: monotonicity approach, 67-
in quantities, 138 72
in quantities and prices, 167 regularity approach, 52-67
traffic problems: of applications:
elastic demand, 202, 238- Nash equilibria, 102-117
239 spatial equilibria, 140-148
fixed demand, 271 elastic demand traffic equi-
projection maps, 14, 18 libria, 205-221
projection method, 78-79 fixed demand traffic equi-
in link loads, 287 libria, 272-278
in path flows, 221, 278 variational inequality, 45
296 INDEX
statjonary point, 20
step size, 76, 82
stochastic algorithms, 84
strictly monotone attractor, 50
global, 50
system of equations, 13, 22
tatonnement process; see adjust-
ment process
traffic assignment, 197
traffic network equilibrium, 201,
237, 270
travel route choice adjustment pro-
cess, 202, 239, 271
uniqueness theorems, 16,24,31-
32
unstable equilibrium point, 47
utility gradient process, 101-102
variational inequality formulation:
Cournot-Nash equilibria, 97-
98
spatial equilibria:
in quantities, 137, 138
in quantities and prices, 167
elastic demand traffic equi-
libria, 201-202, 238
fixed demand traffic equili-
bria, 270
variational inequality problem, 12
geometric interpretation, 13
relationship with:
complementarity problem,
14
fixed point problem, 14
optimization problem, 14
system of equations, 13
Wardrop's principle, 197, 201

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Anna Nagurney, Ding Zhang (Auth.) Projected Dynamical Systems and Variational Inequalities With Applications 1996

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Projected Dynamical Systems and

Variational Inequalities with Applications

Frederick S. Hillier, Series Editor

Library of Congress Cataloging-in-Publication Data

Copyright c 1996 by Springer Science+Business Media New York

Printed on acid-free paper.

Glossary of Notation XXI

I Theory of Projected Dynamical Systems 1

1 Introduction and Overview 3

2 Projected Dynamical Systems 9

3.4 Sources and Notes . . . . . . . . . . . . . . . . . . . . . . 72

4 Discrete Time Algorithms 75

5 Oligopolistic Market Equilibrium 93

6 Spatial Price Equilibrium 133

6.4.2 Computation of Asymmetric and Nonlinear Prob-

7 Elastic Demand Traffic Equilibrium 197

7.5 The Traffic Model with Demand Functions ... 236

8 Fixed Demand Traffic Equilibrium 267

2.1 Geometric interpretation ofthe variational inequality prob-

3.1 A stable equilibrium point. . . . . . . . . . 48

4.1 An illustration of a discrete time algorithm in the back-

5.1 Graphical depiction of the spatial oligopoly problem 96

5.4 Graphical display of iterates of the Euler method for a

6.1 Graphical depiction of the spatial price equilibrium problem137

7.1 A transportation network example . . . . . . . . . .. 217

8.1 Graphical display of iterates of the Euler method for the

5.1 Parameters for a 5-firm oligopoly . . . . . . . . . . 122

6.1 Iterates generated by the Euler method for a classical spa-

8.1 Iterates generated by the Euler method for the Braess

The concept of equilibrium is central to the understanding of competitive

ational inequality problem. The expected behavior of the solutions is

For a subset 8 in the Euclidean space, we define the following nota-

Introduction and Overview

Competitive phenomena in diverse disciplines are often characterized by

lutions to what in practice may be large-scale problems, have been the

ferential equation, and, hence, presents one with a dynamical model of

the feasible set.

1.1 Sources and Notes

Originally, the focus of variational inequality theory, as introduced by

Dafermos, S., "Traffic equilibria and variational inequalities," Trans-

Many systems in the modern world involve interacting agents compet-

namical systems theory, however, as shall be demonstrated here, goes

the relationship between a solution to the Skorokhod Problem and the

2.1 The Variational Inequality Problem

{F(x*l, x - x*} ~ 0, \Ix E K, (2.1)

where (-,.) denotes the inner product in Rk.

where C(x) denotes the normal cone of K at x defined by

C(X)={YER k : (yT,x'-x) ~O, \lx'EK}.

A geometric depiction of the variational inequality problem is given

.'..... ' ............... :~.~~al Cone

Figure 2.1: Geometric interpretation of the variational inequality prob-

with the intention of highlighting the connection between these mathe-

A second special case of the variational inequality problem is the

Proposition 2.2 (The Complementarity Problem)

F(x*) ~ 0, and (F(x*l,x*) = o. (2.3)

Thirdly, when a realization of F is specified by the gradient of a scalar

then x* solves the variational inequality problem VI(V f, K).

x* = PK(X* - (3F(x*)), (2.5)

where PK is defined as:

PK(X) = argmin Ilx - zll, (2.6)

and 11·11 denotes the Euclidean norm.

((F(x) - F(x*)?,x - x*) 2: 0, 'r:/x E N(x*). (2.7)

F( x) is monotone at x* if (2.7) holds true for all x E K. F( x) is

((F(x) - F(x*)?,x - x*) > 0, 'r:/x E N(x*), x # x*. (2.8)

{F(xl, x - x} ~ 0, \Ix E K, (2.1)

F(x) ~ 0, and (F(xl,x*) = o. (2.3)

((F(x) - F(x)?,x - x) 2: 0, 'r:/x E N(x*). (2.7)

((F(x) - F(x)?,x - x) > 0, 'r:/x E N(x), x # x. (2.8)

((F(x) - F(x)?,x - x) ~ ",lIx - x1I2, 'r:/x E N(x). (2.9)