Problems in Applied Market Design

Stanford University, Stanford CA

Investigators

Abstract

Economic analysis has played an increasing role in shaping the design of market rules and institutions. In the field of auctions and market design, ideas now move rapidly from the research frontier into practice, informing government policy on the allocation of radio spectrum, being incorporated into proposals for cap and trade policy, troubled asset purchases, and broadband stimulus, and providing new methods and approaches for private sector firms such as Google that have been quick to capitalize on new ideas about auctions and market organization. This project uses a combination of economic theory and empirical methods to understand a series of applied problems in market design. The first problem relates to the design and implementation of radio spectrum auctions, now run regularly by many countries following the lead of the FCC. The research documents a variety of surprising bidding patterns in past auctions and explains the role of strategic bidding. A second project studies the college admissions market. The investigator documents a set of empirical facts about the use of early admissions programs and develops a game-theoretic model that matches the empirical patterns and explains the strategic choices facing students and colleges. A third project studies the problem of selling dated goods, with an empirical application to the market for graphical internet advertising. This project develops an approach to estimating demand for perishable goods when buyers arrive over time and compares competing sales approaches such as auction mechanisms and traditional negotiation. The last project analyzes advanced market commitment mechanisms, which have been proposed as a market-based approach to encourage the development of vaccines for developing countries. The research builds on ideas that arose in designing a program for pneumoccal vaccine that is now being implemented, and so examines the early performance of that program as well as exploring alternative incentive mechanisms. The proposal also highlights additional theoretical and empirical problems in market design that may arise and lead to fruitful innovations during the course of the grant.