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The establishment of a long-term, cross-border market in which forward market coupling and bilateral contracts are developed in an integrated approach is instrumental for the European internal electricity market. We propose the joint energy and transmission right auction (JETRA) mechanism, developed by O'Neill et al., as a solution for long-term cross-border markets in Europe. The main contribution of this research lies in its examination of the underlying market structures for effective JETRA implementation. We compare the institutional setting, market rules, and grid modeling under nodal and zonal pricing systems, adapting JETRA to the flow-based market coupling (FBMC) mechanism that is currently implemented in the European day-ahead market. This adaptation reveals the inherent limitations of FBMC in supporting JETRA, in particular in the long-term auction. We also identify constraints posed by existing European market rules, particularly those that affect the application of multi-settlement rules and the effective timeframe of hedging instruments. In conclusion, our research suggests that transitioning from zonal to nodal pricing is essential for JETRA's effective implementation. Furthermore, a comprehensive market reform is required to seamlessly integrate long- and short-term markets. [ABSTRACT FROM AUTHOR]

We study the interaction between tax advantages for municipal bonds and the market structure of auctions for these bonds. We show that this interaction can limit a bidder's ability to extract information rents and is a crucial determinant of state and local governments' borrowing costs. Reduced-form estimates show that increasing the tax advantage by 3 pp lowers mean borrowing costs by 9–10 |$\%$|⁠. We estimate a structural auction model to measure markups and to illustrate and quantify how the interaction between tax policy and bidder strategic behaviour determines the impact of tax advantages on municipal borrowing costs. We use the estimated model to evaluate the efficiency of Obama and Trump administration policies that limit the tax advantage for municipal bonds. Because reductions in the tax advantage inflate bidder markups and depress competition, the resulting increase in municipal borrowing costs more than offsets the tax savings to the government. Finally, we use the model to analyse a recent non-tax regulation that affects entry into municipal bond auctions. [ABSTRACT FROM AUTHOR]

Patent pricing is the core issue in patent industrialisation. This paper uses game theory to study the effects of auction behaviours when the members of the patent portfolio are auctioned either together or separately. A comparison of patent product yields the results (1) the outputs of a patented product are lower in a packaged auction than in a separate auction, and the outputs of the two auction modes decrease as the correlation between patent members increases; (2) the profits of package portfolios are higher under packaged auctions than under separate auctions, and an enterprise's profit is negatively related to the correlation between the patent members; (3) when a patent portfolio is subjected to separate auction, the product outputs under Stackelberg equilibrium in a game are higher than that under static equilibrium, and the product outputs in the Stackelberg equilibrium decrease with the correlation between patent members; and (4) when the members of a patent portfolio are auctioned separately, the profits in the Stackelberg equilibrium and static equilibrium are related to the correlation between patent portfolio members; the profits in the Stackelberg equilibrium will first decrease and then increase as the correlation between patent portfolio members increases. [ABSTRACT FROM AUTHOR]

Why do some incomplete information markets feature intermediaries while others do not? I study the allocation of two goods in an incomplete information setting with a single principal, multiple agents with unit demand, and interdependent valuations. I construct a novel dynamic mechanism implemented by a principal who faces a set of intermediaries, each of whom represents an ex ante identical set of agents. This mechanism has a unique (up to permutation) weak perfect Bayesian equilibrium. The dynamic mechanism is inefficient with positive probability. Nevertheless, under mild conditions the agents are ex ante better off under the dynamic mechanism relative to a Vickrey-like auction because the intermediaries are more able to exploit information asymmetries in the dynamic mechanism than agents are able to exploit information asymmetries in the Vickrey-like auction. Finally, I show that in large markets the dynamic mechanism and Vickrey-like auction have the same expected total surplus. The comparison between the two mechanisms gives a stylized intuition for the hierarchical structure of larger markets and institutions. [ABSTRACT FROM AUTHOR]

The increasing concentration of share trading volumes at the end of the day is a phenomenon that can be witnessed to varying degrees on all the main markets worldwide. France is, however, one of the markets where this trend has reached the highest levels, with close to 41 per cent of CAC 40 volumes traded at the closing auction on Euronext Paris in June 2019. This rate is well above the 12–14 per cent level seen in the United States. Several factors could account for this phenomenon: • The rapid growth in passive management, for which unit creation and cancellation generally takes place at the end-of-day liquidation value and for which a precise replication entails trading at the closing price. • The obligation of 'best execution' and especially reporting obligations of the trade-and-cost-analysis type to which fund managers have been subject since the application of MiFID II. By trading at the closing auction, this type of reporting becomes superfluous. • A move to avoid high-frequency trading (HFT) arbitrageurs, who rarely get involved in the closing auction phase. • Lastly, the role of execution algorithms, which have amplified the preceding factors, as liquidity attracts liquidity. The study also describes the price formation process during the closing auction phase and shows that while volumes and prices converge rapidly towards their final level during the first half of the order accumulation phase (90 per cent of the volumes traded are already present in the order book with an average price differential of 0.30 per cent), final convergence takes place in the last 15 seconds of the auction. Finally, this change in market structure is accompanied by the emergence of certain risks, in particular an increased exposure to operational incidents, which could occur during this very brief phase, and lower levels of liquidity in the rest of the session. [ABSTRACT FROM AUTHOR]

This paper characterizes equilibrium behavior in an auction where firms bid a unit price in order to fund and gain access to a new piece of infrastructure. Firms need access to this new infrastructure to sell their output in a competitive market. The new facility is built only if enough revenue is generated through the sale of access to the firms. We show by means of an example that this auction mechanism can dominate in terms of efficiency the standard mechanism where a uniform access price is determined ex-ante by a regulator. [ABSTRACT FROM AUTHOR]

We analyze how market design influences bidding in multiunit procurement auctions where suppliers have asymmetric information about production costs. Our analysis is particularly relevant to wholesale electricity markets, because it accounts for the risk that a supplier is pivotal; market demand is larger than the total production capacity of its competitors. With constant marginal costs, expected welfare improves if the auctioneer restricts offers to be flat. We identify circumstances where the competitiveness of market outcomes improves with increased market transparency. We also find that, for buyers, uniform pricing is preferable to discriminatory pricing when producers' private signals are affiliated. [ABSTRACT FROM AUTHOR]

Payments for Ecosystem Service (PES) schemes increasingly use auctions to target funds to low-cost providers, aiming to increase value-for-money. To date, PES auctions have most often employed "Pay-as-Bid" (PaB) pricing, in which successful participants are paid the amount stipulated in their bid(s). Alternative pricing rules exist, such as the "Uniform Price" (UP) rule, in which successful bids receive the same per unit payment determined by the marginal bid. Despite being successfully applied in other settings, the use of UP pricing in PES auctions has been limited. We explore the impact of UP pricing in the context of a scheme incentivising farmers to reduce nutrient run-off. Following our intervention, the auction through which contracts were allocated to farmers switched from PaB to UP. Our analysis provides the first real-world, causal evidence on the effect of alternative auction pricing rules in this context. We find that UP pricing reduced mean bids, by 40%. A priori the impact on payments made to the farmers is ambiguous, yet we find these to be reduced by a similar amount. Moreover, the UP format reduces the incidence of costly bidding behaviours, updating and sniping, by approximately 50% and 30% respectively. These significant and substantial changes suggest wider adoption of UP pricing in PES auctions is likely warranted. [ABSTRACT FROM AUTHOR]

The continuous-time version of Kyle [(1985) Continuous auctions and insider trading, Econometrica 53 (6), 1315-1335.] developed by Back [(1992) Insider trading in continuous time, The Review of Financial Studies 5 (3), 387-409.] is studied here. In Back's model, there is asymmetric information in the market in the sense that there is an insider having information on the real value of the asset. We extend this model by assuming that the fundamental value evolves with time and that it is announced at a future random time. First, we consider the case when the release time of information is predictable to the insider and then when it is not. The goal of the paper is to study the structure of equilibrium, which is described by the optimal insider strategy and the competitive market prices given by the market makers. We provide necessary and sufficient conditions for the optimal insider strategy under general dynamics for the asset demands. Moreover, we study the behavior of the price pressure and the market efficiency. In particular, we find that when the random time is not predictable, there can be equilibrium without market efficiency. Furthermore, for the two cases of release time and for classes of pricing rules, we provide a characterization of the equilibrium. [ABSTRACT FROM AUTHOR]

Market design seeks to translate economic theory and analysis into practical solutions to real-world problems. By redesigning both the rules that guide market transactions and the infrastructure that enables those transactions to take place, market designers can address a broad range of market failures. In this paper, we illustrate the process and power of market design through three examples: the design of medical residency matching programmes; a scrip system to allocate food donations to food banks; and the recent ‘Incentive Auction' that reallocated wireless spectrum from television broadcasters to telecoms. Our lead examples show how effective market design can encourage participation, reduce gaming, and aggregate information, in order to improve liquidity, efficiency, and equity in markets. We also discuss a number of fruitful applications of market design in other areas of economic and public policy. [ABSTRACT FROM AUTHOR]

In this paper, we consider a Cournot auction with uniform nodal prices for a two-node market. The structure of each local market is an oligopoly. We demonstrate how the type of Nash equilibrium depends on the throughput. Finally, we investigate the optimum throughput problem under an imperfect competition in the market. [ABSTRACT FROM AUTHOR]

This article provides evidence on the role of subcontracting in the auction-based procurement setting with private cost variability and capacity constraints. We demonstrate that subcontracting allows bidders to modify their costs realizations in a given auction as well as to control their future costs by reducing backlog accumulation. Restricting access to subcontracting raises procurement costs for an individual project by 12% and reduces the number of projects completed in equilibrium by 20%. The article explains methodological and market design implications of subcontracting availability. [ABSTRACT FROM AUTHOR]

With the increasing use of different types of auctions in market designing, modeling of participants' behaviors to evaluate the market structure is one of the main discussions in the studies related to the deregulated power industries. In this article, we apply an approach of the optimal bidding behavior to the Iran wholesale electricity market as a restructured electric power industry and model how the participants of the market bid in the spot electricity market. The problem is formulated analytically using the Nash equilibrium concept composed of large numbers of players having discrete and very large strategy spaces. Then, we compute and draw supply curve of the competitive market in which all generators' proposed prices are equal to their marginal costs and supply curve of the real market in which the pricing mechanism is pay-as-bid. We finally calculate the lost welfare or inefficiency of the Nash equilibrium and the real market by comparing their supply curves with the competitive curve. We examine 3 cases on November 24 (2 cases) and July 24 (1 case), 2012. It is observed that in the Nash equilibrium on November 24 and demand of 23,487 MW, there are 212 allowed plants for the first case (plants are allowed to choose any quantity of generation except one of them that should be equal to maximum Power) and the economic efficiency or social welfare of Nash equilibrium is 2.77 times as much as the real market. In addition, there are 184 allowed plants for the second case (plants should offer their maximum power with different prices) and the efficiency or social welfare of Nash equilibrium is 3.6 times as much as the real market. On July 24 and demand of 42,421 MW, all 370 plants should generate maximum energy due to the high electricity demand that the economic efficiency or social welfare of the Nash equilibrium is about 2 times as much as the real market. [ABSTRACT FROM AUTHOR]

In an experiment with 739 subjects, we study whether and how different interventions might have an influence on the degree of moral behavior when subjects make decisions that can generate negative externalities on uninvolved parties. Particularly, subjects can either take money for themselves or donate it to UNICEF for measles vaccines. By considering two fairly different institutional regimes-one with individual decision making, one with a double-auction market-we expose the different interventions to a kind of robustness check. We find that the threat of monetary punishment promotes moral behavior in both regimes. Getting subjects more involved with the traded good has no effect, though, in both regimes. Only the removal of anonymity, thus making subjects identifiable, has different effects across regimes, which we explain by different perceptions of responsibility. This paper was accepted by Uri Gneezy, behavioral economics. [ABSTRACT FROM AUTHOR]

On October 18, 2010, the National Stock Exchange of India (NSE) introduced a pre-open session based on call-auctions for the 50 constituents of its leading index S&P CNX Nifty (Nifty). The call-auctions appear to enhance price discovery in the low liquidity stocks. They have also reduced the opening volatility of Nifty significantly by reducing extreme movements in the opening price of its constituent stocks. Most of such stabilization effect is realised in the first five minutes of trading, and is spilled over to the other non-Nifty stocks to a limited extent. [ABSTRACT FROM AUTHOR]

Does the type of posterior feedback affect how people decide in one-shot environments? We revisit this question in first-price auction markets. We consider three feedback types: minimal (only knowing whether winning or not), loser (also knowing the winning bid) and winner (knowing the second highest bid if winning). Filiz-Ozbay and Ozbay (2007) find that loser as opposed to minimal or winner feedback increases bids. We use three novel protocols and additionally replicate theirs. Using a sample of 624 subjects, we find that bidders’ ex ante knowledge of posterior feedback type has no systematic effect on the average bid/value ratios. [ABSTRACT FROM AUTHOR]

The high-frequency trading arms race is a symptom of flawed market design. Instead of the continuous limit order book market design that is currently predominant, we argue that financial exchanges should use frequent batch auctions: uniform price double auctions conducted, for example, every tenth of a second. That is, time should be treated as discrete instead of continuous, and orders should be processed in a batch auction instead of serially. Our argument has three parts. First, we use millisecond-level direct-feed data from exchanges to document a series of stylized facts about how the continuous market works at high-frequency time horizons: (i) correlations completely break down; which (ii) leads to obvious mechanical arbitrage opportunities; and (iii) competition has not affected the size or frequency of the arbitrage opportunities, it has only raised the bar for how fast one has to be to capture them. Second, we introduce a simple theory model which is motivated by and helps explain the empirical facts. The key insight is that obvious mechanical arbitrage opportunities, like those observed in the data, are built into the market design--continuous-time serial processing implies that even symmetrically observed public information creates arbitrage rents. These rents harm liquidity provision and induce a never-ending socially wasteful arms race for speed. Last, we show that frequent batch auctions directly address the flaws of the continuous limit order book. Discrete time reduces the value of tiny speed advantages, and the auction transforms competition on speed into competition on price. Consequently, frequent batch auctions eliminate the mechanical arbitrage rents, enhance liquidity for investors, and stop the high-frequency trading arms race. [ABSTRACT FROM AUTHOR]

The Conservation Reserve Program (CRP) is arguably the world's largest payments-for-ecosystem services program, with $1.8 billion paid to farmers in 2017 for practices on 23.4 million acres. The CRP uses a pay-as-bid, reverse auction with field-specific price caps to enroll most of the land in the program. Economic theory and empirical studies from other domains suggest that the restrictive price-cap auction format used in the current design of the CRP exhibits issues in terms of efficiency and cost-effectiveness. Using a laboratory experiment, we study the impact of varying the tightness of the price-cap auctions. We also examine two alternative auction formats based on reference prices. We find that excessively tight bid caps reduce efficiency and cost effectiveness by discouraging participation. Conversely, bid caps set too high also reduce cost-effectiveness by allowing higher rents. An exogenous reference price ranking format, which makes medium-cost sellers more competitive against low-cost sellers, reduces both efficiency and cost-effectiveness. An endogenous reference price format increases cost-effectiveness by increasing participation and reducing rents. [ABSTRACT FROM AUTHOR]