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The role of submodularity in capacity auctions

Presented by: 
Eddie Anderson University of Sydney
Date: 
Monday 18th March 2019 - 15:45 to 16:30
Venue: 
INI Seminar Room 1
Abstract: 

 

 

We consider a capacity auction in which multiple supplying firms offer bids, and an agent, the buyer, selects which bids to accept. Payments may depend on the set of bids accepted. We consider the role played by a submodularity property for the social welfare function in terms of the set of participating firms. We show how submodularity leads to good properties for the equilibrium. We illustrate this through discussion of a case where the buyer faces uncertain demand and there are separate costs incurred by the suppliers for making capacity available (reservation costs) and for delivering against the required demand (execution costs). We demonstrate that when marginal costs are constant the submodularity property holds, and in equilibrium each supplier makes a profit equal to their marginal contribution and the overall expected welfare is maximized. Eddie Anderson (Lusheng Shao and Bo Cheng)

 

 

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Presentation Material: 
University of Cambridge Research Councils UK
    Clay Mathematics Institute London Mathematical Society NM Rothschild and Sons