Efficiency-risk tradeoffs in dynamic oligopoly markets with application to electricity markets

Thesis (S.M.)--Massachusetts Institute of Technology, Dept. of Electrical Engineering and Computer Science, 2013.Cataloged from PDF version of thesis.Includes bibliographical references (p. 87-90).In an abstract framework, we examine how a tradeoff between efficiency and risk arises in different dynamic oligopolistic markets. We consider a scenario where there is a reliable resource provider and agents which enter and exit the market following a random process. Self-interested and fully rational agents can both produce and consume the resource. They dynamically update their load scheduling decisions over a finite time horizon, under the constraint that the net resource consumption requirements are met before each individual's deadline. We first examine the system performance under the non-cooperative and cooperative market architectures, both under marginal production cost pricing of the resource. The statistics of the stationary aggregate demand processes induced by the two market architectures show that although the non-cooperative load scheduling scheme leads to an efficiency loss - widely known as the "price of anarchy" - the stationary distribution of the corresponding aggregate demand process has a smaller tail. This tail, which corresponds to rare and undesirable demand spikes, is important in many applications of interest. With a better understanding of the efficiency-risk tradeoff, we investigate, in a non-cooperative setup, how resource pricing can be used as a tool by the system operator to tradeoff between efficiency and risk. We further provide a convex characterization of the Pareto front of different system performance measures. The Pareto front determines the tradeoff among volatility suppression of concerned measurements in the system with load scheduling dynamics. This is the fundamental tradeoff in the sense that system performance achieved by any load scheduling strategies induced by any specific market architectures is bounded by this Pareto front.by Qingqing Huang.S.M

General Purpose Technologies "Engines of Growth?"

Whole eras of technical progress and economic growth appear to be driven by a few key technologies, which we call General Purpose Technologies (GPT's). Thus the steam engine and the electric motor may have played such a role in the past, whereas semiconductors and computers may be doing as much in our era. GPT's are characterized by pervasiveness (they are used as inputs by many downstream sectors), inherent potential for technical improvements, and innovational complementarities', meaning that the productivity of R&D in downstream sectors increases as a consequence of innovation in the GPT. Thus, as GPT's improve they spread throughout the economy, bringing about generalized productivity gains. Our analysis shows that the characteristics of GPT's imply a sort of increasing returns to scale phenomenon, and that this may have a large role to play in determining the rate of technical advance; on the other hand this phenomenon makes it difficult for a decentralized economy to fully exploit the growth opportunities offered by evolving GPT's. In particular; if the relationship between the GPT and its users is limited to arms-length market transactions, there will be "too little, too late" innovation in both sectors. Likewise, difficulties in forecasting the technological developments of the other side may lower the rate of technical advance of all sectors. Lastly, we show that the analysis of GPT's has testable implications in the context of R&D and productivity equations, that can in principle be estimated.

Competition Policy in Small Distant Open Economies: Some Lessons from the Economics Literature

New Zealand is a small open economy that is remote from all major markets. The smallness and remoteness of New Zealand combine to imply that this country has, at least quantitatively, distinctive features for the regulation of economic activity by competition law. The isolation and small size of the economy mean that typically all but exporting firms are small as judged on a world scale, and that domestic markets are small and generally highly concentrated. This paper reviews the economic literature on the implications of an economy’s size and isolation for competition law. The literature suggests that principles underlying competition law do not change for small economies, but that the application of competition law should be different. In small economies, low regulatory and tax barriers to trade dominate the importance of competition law for good economic performance of domestic markets. In these economies, competition law should focus on economic benefit/detriment evaluations of mergers and trade practices rather than rules of thumb of the sort based on measures of market structure and indicators of competition, or those aimed at prohibiting particular practices per se. Producers’ surplus should not be de-emphasised in the calculation of benefits and detriments in small economies; particularly for activities that relate in any way to (potential) export activity. For any economy, particularly in the presence of competition, cooperation enhances economic performance in specific circumstances. In small economies cooperation can be particularly efficient-for example, in achieving scale and thereby export performance-although it may entail interaction among a large fraction of players in an industry. The approach that the literature suggests to the application of competition law in small economies places relatively heavy weight on dynamic efficiency as the criterion for competition law design and enforcement. It is squarely in accord with recommendations in the literature on desirable competition law for the so-called new economy.Small; Isolated; Economy; Antitrust; New Zealand; Producer Surplus: Consumer Surplus; Competition Law; Economic Benefit; Economic Detriment; Rule of Reason

Industry Trade-Balance and Domestic Merger Policy: Some Empirical Evidence from the U.S.

The literature on antitrust in an open-economy setting is inconclusive with respect to the role played by trade-balance on the tenor of domestic merger policy. Using a panel data set composed of US merger reviews by industrial sector over the 1997-2001 period, I empirically test the impact of sectoral trade balance on the level of antitrust scrutiny. The results suggest that larger trade balances lead to more vigorous antitrust scrutiny; thus, ‘strategic’ merger policy does not appear evident, and consumer-surplus appears to guide US merger policy even under the lure of international competitive gains. ZUSAMMENFASSUNG - (Empirische Evidenz über den Zusammenhang von Leistungsbilanz und Fusionspolitik in den U.S.A.) Die "anti-trust"-Literatur bezogen auf eine offene Volkswirtschaft sagt wenig dazu aus, welche Rolle die Leistungsbilanz für die Fusionspolitik eines Landes spielt. In diesem Papier wird anhand von Paneldaten, in denen die Berichte der Fusionskontrolle in unterschiedlichen Industrien der U.S.A. über einen Zeitraum von 1997-2001 zusammengestellt sind, empirisch getestet, welchen Effekt die Leistungsbilanzen - nach Industriezweigen unterteilt - auf das Niveau der "antitrust"- Kontrolle haben. Die Ergebnisse der Tests deuten an, dass mit größerem Leistungsbilanzgewicht auch eine strengere "anti-trust"-Kontrolle einhergeht. Folglich ist eine "strategische" Fusionspolitik der U.S.A. nicht zu erkennen. Stattdessen scheint die US-amerikanische Fusionspolitik stark vom Verbrauchernutzen geleitet zu sein, trotz der Verheißung internationaler Wettbewerbsvorteile.Merger Policy, International Effects, Open Economy

Using Laboratory Experiments to Design Efficient Market Institutions: The case of wholesale electricity markets

This paper assesses the contribution of laboratory experiments to the economics of design applied to the electricity industry. The analysis is dedicated to wholesale markets, and reviews the results accumulated to date concerning both the general architecture of power markets and the very details of the market rules or institution, that is the auction rule. We argue that these experimental results contribute to a better understanding of the performances properties and implementation features of competitive market designs and that experimental economics has proven very useful to public authorities to inform the restructuring of electricity industry. It thus confirms the role of experimental economics as a complement to theoretical approaches in the design effort.Experimental economics; market design; design economics; electricity auction;

Economics and Politics: Perspectives on the Goals and Future of Antitrust

This Article examines the roles of economics and politics in U.S. antitrust from several perspectives. It explains why the modern debate over the economic welfare standard that enforcers and courts should pursue is unsatisfying. It connects economics with politics by describing antitrust’s economic goals as the product of a mid-twentieth century political understanding about the nature of economic regulation that continues to be accepted. To protect that understanding, it explains, antitrust rules should now be implemented using a qualified consumer welfare standard. It identifies contemporary political tensions that threaten to create regulatory gridlock or even to undermine that political understanding and uses that framework to sketch several possible futures for competition policy. Notwithstanding these political tensions, the Article concludes, economics plays an indispensable role in shaping and applying modern antitrust

Compulsory Licensing of Technology and the Essential Facilities Doctrine

We consider compulsory licensing of intellectual property as a remedy for anticompetitive practices. We identify aspects of intellectual property that could warrant a different remedy from those developed for access to physical essential facilities. Based on the analysis, we present a characterisation of optimal compulsory licensing for a simple market. We find that royalty payments offer a greater range of choices to a regulator than fixed fees. Thus, even though the marginal cost of supplying access to intellectual property is zero, some unit charging is likely to be efficient.essential facilities, intellectual property, access price, royalty, investment

Review of Economic Theories of Regulation

This paper reviews the economic theories of regulation. It discusses the public and private interest theories of regulation, as the criticisms that have been leveled at them. The extent to which these theories are also able to account for privatization and deregulation is evaluated and policies involving re-regulation are discussed. The paper thus reviews rate of return regulation, price-cap regulation, yardstick regulation, interconnection and access regulation, and franchising or bidding processes. The primary aim of those instruments is to improve the operating efficiency of the regulated firms. Huge investments will be needed in the regulated network sectors. The question is brought up if regulatory instruments and institutions primarily designed to improve operating efficiency are equally well-placed to promote the necessary investments and to balance the resulting conflicting interests between for example consumers and investors.Regulation, Deregulation, Public Interest Theories, Private Interest Theories, Interest Groups, Public Choice, Market Failures, Price-cap Regulation, Rate of Return Regulation, Yardstick Competition, Franchise Bidding, Access Regulation.

The Efficiency Test under Competition Law and Regulation in Small Distant Open Economy that is New Zealand

This paper considers the application of competition law and price regulation inthe very small and isolated economy that is New Zealand. It argues that the total surplus (efficiency) criterion should be applied in tests of practices and actions where the competition threshold is not met or doubtful. Further it argues that this criterion is admitted if not required under New Zealand statutes. The differential treatment of affected parties including foreign investors in measuring the surplus is considered