Smart Computer-Assisted Markets

The deregulation movement has motivated the experimental study of auction markets designed for interdependent network industries such as natural gas pipelines or electric power systems. Decentralized agents submit bids to buy commodity and offers to sell transportation and commodity to a computerized dispatch center. Computer algorithms determine prices and allocations that maximize the gains from exchange in the system relative to the submitted bids and offers. The problem is important, because traditionally the scale and coordination economies in such industries were thought to require regulation. Laboratory experiments are used to study feasibility, limitations, incentives, and performance of proposed market designs for deregulation, providing motivation for new theory.