Explore the vast range of titles available.

This report assesses the potential of electricity contract auctions as a procurement option for the World Bank's client countries. It focuses on the role of auctions of electricity contracts designed to expand and retain existing generation capacity. It is not meant to be a 'how-to' manual. Rather, it highlights some major issues and options that need to be taken into account when a country considers moving towards competitive electricity procurement through the introduction of electricity auctions. Auctions have played an important role in the effort to match supply and demand. Ever since the 1990s, the use of long-term contract auctions to procure new generation capacity, notably from private sector suppliers, has garnered increased affection from investors, governments, and multilateral agencies in general, as a means to achieve a competitive and transparent procurement process while providing certainty of supply for the medium to long term. However, the liberalization of electricity markets and the move from single-buyer procurement models increased the nature of the challenge facing system planners in their efforts to ensure an adequate and secure supply of electricity in the future at the best price. While auctions as general propositions are a means to match supply with demand in a cost-effective manner, they can also be and have been used to meet a variety of goals.

This report summarizes the results of a recent review of the emerging experience with the design and implementation of policy instruments to promote the development of renewable energy (RE) in a sample of six representative developing countries and transition economies ('developing countries') (World Bank 2010). The review focused mainly on price- and quantity-setting policies, but it also covered fiscal and financial incentives, as well as relevant market facilitation measures. The lessons learned were taken from the rapidly growing literature and reports that analyze and discuss RE policy instruments in the context of different types of power market structures. The analysis considered all types of grid-connected RE options except large hydropower: wind (on-shore and off-shore), solar (photovoltaic and concentrated solar power), small hydropower (SHP) (with capacities below 30 megawatts), biomass, bioelectricity (cogeneration), landfill gas, and geothermal. The six countries selected for the review included Brazil, India, Indonesia, Nicaragua, Sri Lanka, and Turkey.

The object of this chapter is to propose an environment in which expropriations cannot be ruled out because of ex post political pressures. General conditions are derived that characterize the optimal ex ante contract, in the sense that the government maximizes social welfare under the threat of expropriation. Here, it is also shown how the optimal contract can be implemented using a competitive auction. In the model utilized in this chapter, the government has a natural resource project that requires up-front sunk investment, as in the case of a mining or oil extraction project. Since the problem of expropriation usually arises with foreign investment, profits are not included in the welfare function of the planner, and because the good is not consumed at home but exported, the government only cares about the revenues it can obtain from the project.

An Equivalence Theorem between geometric structures and utility functions allows new methods for understanding preferences. Our classification of valuations into \"Demand Types\" incorporates existing definitions (substitutes, complements, \"strong substitutes,\" etc.) and permits new ones. Our Unimodularity Theorem generalizes previous results about when competitive equilibrium exists for any set of agents whose valuations are all of a \"demand type.\" Contrary to popular belief, equilibrium is guaranteed for more classes of purely-complements than of purely-substitutes, preferences. Our Intersection Count Theorem checks equilibrium existence for combinations of agents with specific valuations by counting the intersection points of geometric objects. Applications include matching and coalition-formation, and the \"Product-Mix Auction\" introduced by the Bank of England in response to the financial crisis.

Auctions are widely used in practice. Although auctions are also extensively studied in the literature, most of the developments rely on the significant common prior assumption. We study the design of optimal prior-independent selling mechanisms: buyers do not have any information about their competitors, and the seller does not know the distribution of values but only knows a general class to which it belongs. Anchored on the canonical model of buyers with independent and identically distributed values, we analyze a competitive ratio objective in which the seller attempts to optimize the worst-case fraction of revenues garnered compared with those of an oracle with knowledge of the distribution. We characterize properties of optimal mechanisms and in turn establish fundamental impossibility results through upper bounds on the maximin ratio. By also deriving lower bounds on the maximin ratio, we are able to crisply characterize the optimal performance for a spectrum of families of distributions. In particular, our results imply that a second price auction is an optimal mechanism when the seller only knows that the distribution of buyers has a monotone nondecreasing hazard rate, and it guarantees at least 71.53% of oracle revenues against any distribution within this class. Furthermore, a second price auction is near optimal when the class of admissible distributions is that of those with nondecreasing virtual value function (a.k.a. regular). Under this class, it guarantees a fraction of 50% of oracle revenues, and no mechanism can guarantee more than 55.6%. This paper was accepted by Kalyan Talluri, revenue management and market analytics .

We show the strong substitutes product-mix auction bidding language provides an intuitive and geometric interpretation of strong substitutes as Minkowski differences between sets that are easy to identify. We prove that competitive equilibrium prices for agents with strong substitutes preferences can be computed by minimizing the difference between two linear programs for the positive and the negative bids with suitably relaxed resource constraints. This also leads to a new algorithm for computing competitive equilibrium prices which is competitive with standard steepest descent algorithms in extensive experiments.

In markets with budget‐constrained buyers, competitive equilibria need not be efficient in the utilitarian sense or maximize the seller's revenue. We consider a setting with multiple divisible goods. Competitive equilibrium outcomes, and only those, are constrained utilitarian efficient, a notion of utilitarian efficiency that respects buyers' demands and budgets. Our main contribution establishes that when buyers have linear valuations, competitive equilibrium prices are unique and revenue‐optimal for a zero‐cost seller.

In sponsored search advertising, advertisers bid to be displayed in response to a keyword search. The operational activities associated with participating in an auction, i.e., submitting the bid and the ad copy, customizing bids and ad copies based on various factors (such as the geographical region from which the query originated, the time of day and the season, the characteristics of the searcher), and continuously measuring outcomes, involve considerable effort. We call the costs that arise from such activities keyword management costs . To reduce these costs and increase advertisers’ participation in keyword auctions, search engines offer an opt-in tool called broad match with automatic and flexible bidding , wherein the search engine automatically places bids on behalf of the advertisers and takes over the above activities as well. The bids are based on the search engine’s estimates of the advertisers’ valuations and, therefore, may be less accurate than the bids the advertisers would have turned in themselves. Using a game-theoretic model, we examine the strategic role of keyword management costs, and of broad match, in sponsored search advertising. We show that because these costs inhibit participation by advertisers in keyword auctions, the search engine has to reduce the reserve price, which reduces the search engine’s profits. This motivates the search engine to offer broad match as a tool to reduce keyword management costs. If the accuracy of broad match bids is sufficiently high, advertisers adopt broad match and benefit from the cost reduction, whereas if the accuracy is very low, advertisers do not use it. Interestingly, at moderate levels of bid accuracy, advertisers individually find it attractive to reduce costs by using broad match, but competing advertisers also adopt broad match and the increased competition hurts all advertisers’ profits, thus creating a “prisoner’s dilemma.” When advertisers adopt broad match, search engine profits increase. It therefore seems natural to expect that the search engine will be motivated to improve broad match accuracy. Our analysis shows that the search engine will increase broad match accuracy up to the point where advertisers choose broad match, but that increasing the accuracy any further reduces the search engine’s profits.

An organization must decide which of two proposals to fund. In evaluating the proposals, the organization relies on the agents applying for funding to produce evidence about the merits of their own proposals. When the organization can fund all proposals, each agent engages in an independent game of Bayesian persuasion with the organization, choosing information strategies that maximize the probability of producing evidence in favor of funding. When the organization has limited capacity to implement proposals, the game becomes one of competitive Bayesian persuasion. Producing favorable evidence is not enough to secure funding; an agent must also produce more-favorable evidence than the other agent. We show that an organization's limited capacity leads agents to produce more (Blackwell) informative evidence than they do when the organization is unconstrained. We fully characterize the unique equilibrium under unlimited and limited capacity, and show that unless the prior strongly favors accepting both proposals, the funding organization is better off when its capacity is limited. The analysis highlights similarities between competitive Bayesian persuasion games and all-pay auctions and generalized Colonel Blotto games.

Display advertising is a major source of revenue for many online publishers and content providers. Historically, display advertising impressions have been sold through prenegotiated contracts, known as reservation contracts , between publishers and advertisers. In recent years, a growing number of impressions are being sold in real-time bidding (RTB), where advertisers bid for impressions in real time, as consumers visit publishers’ websites. RTB allows advertisers to target consumers at an individual level using browser cookie information, and enables them to customize their ads for each individual. The rapid growth of RTB has created new challenges for advertisers and publishers on how much budget and ad inventory to allocate to RTB. In this paper, we use a game theory model with two advertisers and a publisher to study the effects of RTB on advertisers’ and publishers’ strategies and their profits. We show that symmetric advertisers use asymmetric strategies where one advertiser buys all of his impressions in RTB, whereas the other advertiser focuses on reservation contracts. Interestingly, we find that while both advertisers benefit from the existence of RTB, the advertiser that focuses on reservation contracts benefits more than the advertiser that focuses on RTB. We show that while RTB lowers the equilibrium price of impressions in reservation contracts, it increases the publisher’s total revenue. Despite many analysts’ belief that, because of being more efficient, RTB will replace reservation contracts in the future, we show that publishers have to sell a sufficiently large fraction of their impressions in reservation contracts to maximize their revenue. We extend our model to consider premium consumers, publisher’s uncertainty about the number of future visitors, and effectiveness of ad customization. The online appendix is available at https://doi.org/10.1287/mksc.2017.1083 .