Mechanism design and allocation algorithms for network markets with piece-wise linear costs and externalities

Benjamin Heymann () and Alejandro Jofré
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Benjamin Heymann: Commands - Control, Optimization, Models, Methods and Applications for Nonlinear Dynamical Systems - CMAP - Centre de Mathématiques Appliquées de l'Ecole polytechnique - Inria - Institut National de Recherche en Informatique et en Automatique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique - Centre Inria de Saclay - Inria - Institut National de Recherche en Informatique et en Automatique
Alejandro Jofré: CMM - Center for Mathematical Modeling - UCHILE - Universidad de Chile = University of Chile [Santiago]

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Abstract: Motivated by market power in electricity market we introduce a mechanism design in [1] for simplified markets of two agents with linear production cost functions. In standard procurement auctions, the market power resulting from the quadratic transmission losses allow the producers to bid above their true value (i.e. production cost). The mechanism proposed in the previous paper reduces the producers margin to the society benefit. We extend those results to a more general market made of a finite number of agents with piecewise linear cost functions, which make the problem more difficult, but at the same time more realistic. We show that the methodology works for a large class of externalities. We also provide two algorithms to solve the principal allocation problem.

Keywords: Electricity markets; Allocation algorithm; Mechanism design; Auctions; Fixed point (search for similar items in EconPapers)
Date: 2016-12-14
Note: View the original document on HAL open archive server: https://hal.science/hal-01416411v1
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