A Mean-Field Game Approach to Price Formation

Diogo A. Gomes () and João Saúde ()
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Diogo A. Gomes: King Abdullah University of Science and Technology (KAUST)
João Saúde: Carnegie Mellon University

Dynamic Games and Applications, 2021, vol. 11, issue 1, No 2, 29-53

Abstract: Abstract Here, we introduce a price formation model where a large number of small players can store and trade a commodity such as electricity. Our model is a constrained mean-field game (MFG) where the price is a Lagrange multiplier for the supply versus demand balance condition. We establish the existence of a unique solution using a fixed-point argument. In particular, we show that the price is well defined, and it is a Lipschitz function of time. Then, we study linear-quadratic models that can be solved explicitly and compare our model with real data.

Keywords: Mean-field games; Price formation; Monotonicity methods; 91A13; 91A10; 49M30 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s13235-020-00348-x

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