Market design uses economic theory in order to improve the function of real-world market institutions. There are many kinds of successful market designs in practice including spectrum and liquidity auctions, two-sided matching markets for entry-level jobs, object allocation systems, and trading platforms. These applications have put market design at the forefront of economics. However, most theoretical and practical market design solutions have been developed for the allocation of homogeneous (e.g. carbon permits) or substitutable (e.g. school places) resources.
Many important problems in market design involve complementarities. In this research programme, we consider three types of complementarities that arise when:
- A buyer in an auction is only interested in buying a bundle of items rather than in buying any individual items (e.g. auctions for spectrum or procurement auctions for truckload transportation)
- An agent is an intermediary in a trading network and wants to buy one good and sell another good simultaneously (e.g. in peer-to-peer electricity networks), and
- The designer faces allocation constraints so that from a social welfare perspective certain sets of transactions or types of resources are complementary (e.g. in the allocation of refugee families to resettlement destinations).
When complementarities are present, it is important (e.g. for efficiency reasons) to ensure that as many complementary transactions take place as possible. Therefore, there is a great need for coordination and robust market design. But designing a market for complementary resources often runs into theoretical and practical difficulties.
In this project, we hope to answer the following three questions:
- How should we design auctions where buyers have complementary preferences over goods?
- How should we design networked markets with many intermediaries?
- How should we design two-sided markets with complex allocation constraints?
The research project is supported by the Economic and Social Research Council ES/R007470/1