Theory and evidence on pricing by asymmetric oligopolies

We present an analysis of markets with many asymmetrically positioned retailers that compete for the business of both informed and uninformed customers for a homogenous good, such as software, music, book or a brand-name appliance. We show that two forms of asymmetry, one related to loyal segment sizes of retailers and one related to the positioning of firms, completely explain the observed price dispersion in such markets and the multitude of asymmetrical strategies adopted by retailers. The stochastic dominance of empirical mixed strategy measures is used to test the theory with data on 968 books from 10 online retailers

Incentivizing Truth-Telling in MPC-based Load Frequency Control

We present a mechanism for socially efficient implementation of model predictive control (MPC) algorithms for load frequency control (LFC) in the presence of self-interested power generators. Specifically, we consider a situation in which the system operator seeks to implement an MPC-based LFC for aggregated social cost minimization, but necessary information such as individual generators' cost functions is privately owned. Without appropriate monetary compensation mechanisms that incentivize truth-telling, self-interested market participants may be inclined to misreport their private parameters in an effort to maximize their own profits, which may result in a loss of social welfare. The main challenge in our framework arises from the fact that every participant's strategy at any time affects the future state of other participants; the consequences of such dynamic coupling has not been fully addressed in the literature on online mechanism design. We propose a class of real-time monetary compensation schemes that incentivize market participants to report their private parameters truthfully at every time step, which enables the system operator to implement MPC-based LFC in a socially optimal manner

Entering the Economic Models of Game Console Manufacturers

This paper deals with the video game console market. We are not interested here in portable consoles nor in PC games. Our work focuses on the role of core competencies in console wars, analyzing the way these competencies are activated within the firms' business models. The home console market also exhibits crossed network externalities, which requires console manufacturers the ability to conciliate the interests of both developers and gamers. From a strategic point of view, core competencies are closely related with market performance. Today, Sony's and Microsoft's business models are quite similar. However, Microsoft and Sony remain far behind Nintendo and its Wii, which suggests that core competencies do not discriminate on performance as much as the positioning choices made upstream when the strategy is crafted. The link between core competencies, economic model and strategy is at the heart of this study.video game console, business model, core competencies, two-sided market, platform.

Pricing Innovation: State of the Art and Automotive Applications

The paper aims at elaborating on pricing and business models for forthcoming innovative ITS devices, limiting its scope in particular to in-vehicle driving assistance systems and suggesting the various possible innovation and pricing strategies with theoretical discussions. The methodology is based on a comprehensive literature review of the major contributions made by the fields of managerial economics and management sciences to the study of pricing strategies and practices and, in particular, the pricing of innovative goods or services, in order to identify the strengths and weaknesses of the various schools of thought. The paper also gathers and analyzes the available data on two innovative navigation and safety devices for cars, namely ABS (Anti-Lock Braking System) and navigation systems, in order to put forward an initial interpretation.It concludes that there is no formula or even a vague method for determining "acceptable" price levels or "trigger points". There are two options, i.e. disruptive innovation which is by essence very risky and incremental innovation with each major model renewal.Innovation; pricing; automobile; intelligent transportation system

Evolving game theory based decision making systems for NETA power market modelling, analysis and trading strategy development

In this thesis, current work carried out on analyzing the strategic behaviours in electricity trading is first reviewed. An intelligent decision-making and support technique, game theory, is often used in the market practice. Game theory is a discipline concerned with how individuals make decisions when they are partly aware of how their action might affect each other and when each individual might take this into account. Deficiencies and limitations of traditional game theory based methods developed for decision-making in electricity trading are also investigated. This research then explores to discover the impact of intelligent systems based trading strategies in the UK power markets. To model these behaviours and the New Electricity Trading Arrangements (NETA) system of the UK, traditional competitive and cooperative game theory strategies are taken into account in the work reported in this thesis. An improved methodology, “trigger price strategy”, is introduced to simulate power generation companies’ enhanced gaming strategies. Such modelling problem is, however, intractable and hence an extra-numerical search technique, Evolutionary Computation, is employed to solve the game theory based system modelling problem. An encoded Genetic Algorithm based technique is developed to search for an effective model for the complex decision-making process and to help decision-makers evaluate their strategies and bidding parameters. A novel and effective electricity trading simulation model is thus developed, where its design features are close to the NETA. The model scale is as close as possible to NETA. A complex and more realistic two-sided transaction mechanism with demand fully incorporated is incorporated in this model. These are a world first in this research area

Uniform Price Market and Behaviour Pattern: What Does the Iberian Electricity Market Point Out?

The electricity spot markets can be considered as capacity constrained markets (Kreps and Scheinkman, 1983), where market price definition depends on the quantity strategies. In this theoretical framework, the main target of the present paper is to show to what extent a spot market organized like a Uniform Price Auction (UPA) is naturally inclined to develop anti-competitive practices, in particular through quantity strategies. To achieve this objective, multivariable models are defined for each daily demand period of the Iberian electricity market. Each model correlates the hourly market price change and the bid quantities of the two main Iberian producers (Endesa and Iberdrola), for every summer between 2001 and 2004. To apply those models one has to solve the endogeneity problem. This exercise is also useful to highlight any anti-competitive behaviour. Quantities produced by the producers with infra marginal bids should not be endogenous when there is no risk that they will not be dispatched, unless producers have some expectations about the system marginal price. In addition, this kind of endogeneity reinforces the model’s theoretical assumption that change in the system marginal price stems from quantity strategies. The models present some expectable but interesting results. Those results show that even base load units’ bids may depend on expectations about the system marginal price evolution. Those expectations can reflect market strategies. Therefore, in a market where the main companies own base load and peak load units, like the Iberian wholesale electricity market, the UPA is an open window to anti-competitive practices based on quantity strategies, such as the raising of the system marginal price through the capacity withdrawal from base load units.oligopoly, electricity, endogeneity, uniform-price market

Open Access to Telecommunications Infrastructure and Digital Services: Competition, Cooperation and Regulation

Open Access, defined as the non-discriminatory access to an upstream bottleneck resource, takes a central role in information and communications technology markets. This thesis investigates the competitive and cooperative interactions in these markets, where firms require access to an essential input resource. Theoretical analyses and experimental evaluations are employed to examine market outcomes under alternative regulatory institutions and voluntary access agreements

Using EPECs to model bilevel games in restructured electricity markets with locational prices

CWPE0619 (EPRG0602) Xinmin Hu and Daniel Ralph (Feb 2006) Using EPECs to model bilevel games in restructured electricity markets with locational prices We study a bilevel noncooperative game-theoretic model of electricity markets with locational marginal prices. Each player faces a bilevel optimization problem that we remodel as a mathematical program with equilibrium constraints, MPEC. This gives an EPEC, equilibrium problem with equilibrium constraints. We establish sufficient conditions for existence of pure strategy Nash equilibria for this class of bilevel games and give some applications. We show by examples the effect of network transmission limits, i.e. congestion, on existence of equilibria. Then we study, for more general EPECs, the weaker pure strategy concepts of local Nash and Nash stationary equilibria. We model the latter via complementarity problems, CPs. Finally, we present numerical examples of methods that attempt to find local Nash or Nash stationary equilibria of randomly generated electricity market games. The CP solver PATH is found to be rather effective in this context

Investment Incentives and Electricity Spot Market Design

In liberalized electricity markets strategic firms compete in an environment characterized by fluctuating demand and non-storability of electricity. While spot market design under those conditions by now is well understood, a rigorous analysis of investment incentives is still missing. Existing models, as the peak-load-pricing approach, analyze welfare optimal investment and find that optimal investment is higher with more competitive spot markets. In this article we want to extend the analysis to investment decisions of strategic firms that anticipate competition on many consecutive spot markets with fluctuating (and possibly uncertain) demand. We study how the degree of spot market competition affects investment incentives and welfare and provide an application of the model to electricity market data. Our results show that more competitive spot market prices strictly decrease investment incentives of strategic firms. The reduction of investment incentives can be so intense to even offset the beneficial impact of more competitive spot market design. Those results obtain with and without free entry. Our analysis thus demonstrates that investment incentives necessarily have to be taken into account for a meaningful assessment of proper electricity spot market design