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Market Engineering: A Research Agenda

Henner Gimpel, Nicholas R. Jennings, Gregory E. Kersten, Axel Ockenfels and Christof Weinhardt
2008. Negotiation Auctions and Market Engineering. Lecture Notes in Business Information Processing,  Henner Gimpel , Nick Jennings, Gregory Kersten, Axel Ockenfels and Christof Weinhardt (eds.), 1-15. Berlin, Heidelberg: Springer.

Strommarktdesign: Zur Ausgestaltung der Auktionsregeln an der EEX

Veronika Grimm, Axel Ockenfels and Gregor Zoettl
2008. Zeitschrift für Energiewirtschaft, 32(3), 147-161.

Strommarktdesign: Zur Ausgestaltung der Auktionsregeln an der EEX Der Beitrag beschäftigt sich mit dem Design von Stromauktionen in einer börsenbasierten Marktstruktur. Wir analysieren verschiedene Preisbildungsregeln und diskutieren, inwieweit in Stromauktionen komplementäre Kostenbestandteile durch spezielle Gebotsformate berücksichtigt werden sollten. Wir analysieren außerdem verschiedene Rahmenbedingungen des Stromhandels aus Marktdesignsicht, insbesondere die Kopplung bisher unabhängig operierender Strommärkte sowie die Transparenz des Stromhandels.

Ein Vergleich ausgewählter europäischer Strombörsen

Veronika Grimm, Axel Ockenfels and Gregor Zoettl
2008. Zeitschrift für Energiewirtschaft, 32(3), 162-270.

Ein Vergleich ausgewählter europäischer Strombörsen. Dieser Beitrag stellt die Regelwerke ausgewählter europäischer Stromauktionen vor und vergleicht ihre institutionelle Ausgestaltung. Die Auktionen verwenden zumeist dieselbe Preisbildungsregel, unterscheiden sich jedoch hinsichtlich der möglichen Gebotsformate und des Grades der internationalen Koordination. Ein Vergleich der Märkte bringt Einsichten für ein effektives Strommarktdesign.

Neun Beobachtungen zur Preisbildung im liberalisierten Strommarkt: Darf man seiner Intuition vertrauen?

Axel Ockenfels
2008. In: Bonner Gespräch zum Energierecht, Wolfgang Löwer (ed.), 3, 9-29. Göttingen: Vandenhoeck & Ruprecht.

The Penalty-Duel and Institutional Design: Is there a Neeskens-Effect?

Wolfgang Leininger and Axel Ockenfels
2008. In: Myths and Facts About Football: The Economics and Psychology of the World’s Greatest Sport, Patric Andersson, Peter Ayton and Carsten Schmidt (eds.), 73-92. Cambridge: Cambridge Scholars Publishing.

Does Competition Promote Trust and Trustworthiness in Online Trading? An Experimental Study

Gary Bolton, Claudia Loebbecke and Axel Ockenfels
2008. Journal of Management Information Systems, 25(2), 145-169.

Many Internet markets rely on feedback systems, essentially social networks of reputation, to facilitate trust and trustworthiness in anonymous transactions. Market competition creates incentives that arguably may enhance or curb the effectiveness of these systems. We investigate how different forms of market competition and social reputation networks interact in a series of laboratory online markets, where sellers face a moral hazard. We find that competition in strangers networks (where market encounters are one-shot) most frequently enhances trust and trustworthiness, and always increases total gains-from-trade. One reason is that information about reputation trumps pricing in the sense that traders usually do not conduct business with someone having a bad reputation not even for a substantial price discount. We also find that a reliable reputation network can largely reduce the advantage of partners networks (where a buyer and a seller can maintain repeated exchange with each other) in promoting trust and trustworthiness if the market is sufficiently competitive. We conclude that, overall, competitive online markets have more effective social reputation networks. 

Cooperation in Viscous Populations - Experimental Evidence

Veronika Grimm and Friederike Mengel
2008. Games and Economic Behavior, Online-First Version.
We experimentally investigate the effect of population viscosity (an increased probability to interact with others of one's type or group) on cooperation in a standard prisoners dilemma environment. Subjects can repeatedly choose between two groups, that differ in the defector gain in the associated prisoners dilemma. Choosing into the group with the smaller defector-gain can signal one's willingness to cooperate. The degree of viscosity is varied across treatments. We find that both, the share of subjects that choose into the 'cooperative' group and the share of subjects that do cooperate, rise sharply with the degree of viscosity. The subjects intrinsic willingness to cooperate is a strictly increasing function of the expected probability that others cooperate if and only if viscosity is high enough.

Self-centered Fairness in Games with More than Two Players

Gary E. Bolton and Axel Ockenfels
2008. In: Handbook of Experimental Economics Results, Charlie Plott and Vernon Smith (eds.), I, 531-540. North Holland: Elsevier.

Testing Theories of Other-regarding Behavior - A Sequence of Four Laboratory Studies

Gary E. Bolton, Jordi Brandts, Elena Katok, Axel Ockenfels and Rami Zwick
2008. In: Handbook of Experimental Economic Results, Charlie Plott and Vernon Smith (eds.), 2, 488-499. North Holland: Elsevier.

Geht in Deutschland das Licht aus?

Axel Ockenfels
2008. Frankfurter Allgemeine Zeitung. 16 August, 11.
Weil die Investoren abwarten, entstehen keine neuen Kapazitäten, das Risiko einer Stromlücke wächst. Ockenfels erläutert, welche Regeln der Strommarkt braucht, damit die Lichter anbleiben und die vor zehn Jahren erfolgte Liberalisierung doch noch zu dem erhofften großen Erfolg wird.

Paying for Performance in Hospitals

Burkhard Hehenkamp and Oddvar Kaarbøe 
2008. Working Paper.
A frequent form of pay-for-performance programs increase reimbursement for all services by a certain percentage of the baseline price. We examine how such a "bonus-for-quality" reimbursement scheme affects the wage contract given to physicians by the hospital management. To this end, we determine the bonus inducing hospitals to incentivize their physicians to meet the quality standard. Additionally, we show that the health care payer has to complement the bonus with a (sometimes negative) block grant. We conclude the paper relating the role of the block grant to recent experiences in the American health care market.   

Paying for performance

On the Equivalence of Nash and Evolutionary Equilibrium in Finite Populations

Tobias Guse, Alex Possajennikov and Burkhard Hehenkamp
2008. Working Paper.
This paper provides sufficient and partial necessary conditions for the equivalence of Nash and evolutionary equilibrium in symmetric games played by finite populations. The focus is on symmetric equilibria in pure strategies. The conditions are based on properties of the payoff function that generalize the constant-sum property and the ”smallness” property, the latter of which is known from models of perfect competition and non-atomic, anonymous, or large games. The conditions are illustrated on examples of Bertrand and Cournot oligopoly games.

On the Equivalence of Nash and Evolutionary Equilibriu in Finite Populations

Cournot Competition under Uncertainty

Veronika Grimm
2008. University of Cologne Working Paper.
We analyze Cournot competition under demand uncertainty. We show that under rather general assumptions, the game has no asymmetric equilibria but multiple symmetric equilibria. Multiplicity is caused by the requirement of nonnegative prices and remains an issue also for simple demand specications, such as the linear case. We then show that uniqueness of equilibrium is guaranteed if uncertainty is resolved after production has taken place but prior to the sales decision, which is often referred to as the free disposal case. Production is higher under free disposal than in any equilibrium of the game without free disposal. 

Cournot Competition under Uncertainty

Market Engineering. A Research Agenda

Henner Gimpel, Nicholas R. Jennings, Gregory E. Kersten, Axel Ockenfels and Christof Weinhardt
2008. In: Negotiation, Auctions and Market Engineering, Lecture Notes in Business Information Processing, Nick Jennings, Gregory Kersten, Axel Ockenfels and Cristof Weinhardt (eds.). 1-15. Berlin, Heidelberg: Springer.
Market engineering is the discipline of making markets work. It encompasses the use of legal frameworks, economic mechanisms, management science models, and information and communication technologies for the purposes of: (i) designing and constructing forums where goods and services can be bought and sold and (ii) providing services associated with buying and selling. Against this background, this paper sets out the need for a coherent and encompassing agenda in this area and highlights the key constituent building blocks. 

On the Design of Simple Multi-Unit Online Auctions

Thomas Kittsteiner and Axel Ockenfels
2008. In: Negotiation, Auctions an Market Engineering. Lecture Notes in Business Information Processing, Henner Gimpel, Nick Jennings, Gregory Kersten, Axel Ockenfels and Christof Weinhardt (eds.), 68-71. Berlin, Heidelberg: Springer.

Is more information always better? Experimental financial markets with cumulative information

Jürgen Huber, Michael Kirchler, Matthias Sutter
2008. Journal of Economic Behavior and Organization, 65, 86-104.
We study the value of information in financial markets by asking whether having more information always leads to higher returns. We address this question in an experiment where single traders have different information levels about an asset's intrinsic value. In our treatments we vary the nature of the information and the trading mechanism. We find that only the very best informed traders (i.e. insiders) significantly outperform less informed traders. However, there is a wide range of information levels (from zero information to an average information level) where additional information does not yield higher returns. The latter result implies that the value of information is not strictly monotone. 

Inventory Service Level Agreements as Coordination Mechanisms: The Effect of Review Periods

Elena Katok, Douglas Thomas and Andrew Davis
2008. Manufacturing and Service Operations Management, 10, 609-624.
A supplier stocking goods for delivery to a retailer may face a finite-horizon service-level agreement. In this context, the service-level agreement is a commitment by a supplier to achieve a minimum fill rate over a specified time horizon. This kind of service level agreement is an important, but under-studied coordination mechanism. We focus on the impact of two contract parameters, the length of the review period and the magnitude of the bonus for meeting or exceeding the service-level target. For a supplier following a base stock (order-up-to) inventory policy, increasing the bonus increases optimal supplier stocking levels, while lengthening the review period may increase or decrease optimal stocking levels. We investigate these mechanisms in a controlled laboratory setting and find that longer review periods are generally more effective than shorter review periods in inducing higher stocking levels. As in several earlier laboratory studies, the explanation lies in improved feedback reliability that longer review periods provide. The primary managerial implication of our findings is that, in practice, longer review periods may be more effective that shorter ones at inducing service improvements.

Learning-by-Doing in the Newsvendor Problem: A Laboratory Investigation of the Role of Experience and Feedback

Gary E Bolton and Elena Katok
2008. Manufacturing and Service Operations Management, 10, 519-538.
We investigate learning-by-doing in the newsvendor inventory problem. An earlier study observed that decision makers tend to anchor their orders around average demand and fail to adjust sufficiently towards the expected profit-maximizing order. Principles of behavioral theory suggest some relatively simple interventions into the decision maker’s experience and feedback that might improve performance, and these guide our investigation. The results imply that the institutional organization of experience and feedback may have a significant influence on whether inventory is stocked optimally. 

Fixed Price plus Rationing: An Experiment

Veronika Grimm, Jaromir Kovarik and Giovanni Ponti
2008. Experimental Economics, 11, 402-422.
This paper explores, theoretically and experimetnally, a fixed price mechanism by which, if aggregate demand exceeds supply, bidders are proportionally rationed. If demannd is uncertain, equilibrium consists in overstating true demand to alleviate the effects of being rationed. Overstating is more intense the lower the price, with bids reaching their upper limit for sufficiently low prices. In the experiment, despite of a significant proportion of equilibrium play, subjects tend to (under)overbid the equilibrium startegy when rationing is (high) low, with only this latter effect being persistant over time. We explain the experimental evidence by a simple model in which the probability of a deviation is decreasing in the expected loss associated with it.

Fixed Price plus Rationing: An Experiment