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A Scalar Parameterized Mechanism for Two-Sided Markets

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  • Mariola Ndrio
  • Khaled Alshehri
  • Subhonmesh Bose

Abstract

We consider a market in which both suppliers and consumers compete for a product via scalar-parameterized supply offers and demand bids. Scalar-parameterized offers/bids are appealing due to their modeling simplicity and desirable mathematical properties with the most prominent being bounded efficiency loss and price markup under strategic interactions. Our model incorporates production capacity constraints and minimum inelastic demand requirements. Under perfect competition, the market mechanism yields allocations that maximize social welfare. When market participants are price-anticipating, we show that there exists a unique Nash equilibrium, and provide an efficient way to compute the resulting market allocation. Moreover, we explicitly characterize the bounds on the welfare loss and prices observed at the Nash equilibrium.

Suggested Citation

  • Mariola Ndrio & Khaled Alshehri & Subhonmesh Bose, 2020. "A Scalar Parameterized Mechanism for Two-Sided Markets," Papers 2003.01206, arXiv.org.
    • Handle: RePEc:arx:papers:2003.01206
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    References listed on IDEAS

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    1. Swinand, Gregory & Scully, Derek & Ffoulkes, Stuart & Kessler, Brian, 2010. "Modeling EU Electricity Market Competition Using the Residual Supply Index," The Electricity Journal, Elsevier, vol. 23(9), pages 41-50, November.
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    3. Newbery, D., 2008. "Predicting market power in wholesale electricity markets," Cambridge Working Papers in Economics 0837, Faculty of Economics, University of Cambridge.
    4. A. P. Lerner, 1934. "The Concept of Monopoly and the Measurement of Monopoly Power," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 1(3), pages 157-175.
    5. Ross Baldick & Ryan Grant & Edward Kahn, 2004. "Theory and Application of Linear Supply Function Equilibrium in Electricity Markets," Journal of Regulatory Economics, Springer, vol. 25(2), pages 143-167, March.
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