Market design and auctions
The design of rules governing the exchange of goods and services has far-reaching implications, ranging from efficiency in production and consumption to whether the market will be perceived as sufficiently robust to support private investment and entry. The potential designs are nearly limitless, and gas and electricity markets throughout the world have provided testbeds for several different philosophies. Some of the questions to be addressed in a market design include: what is the market? Is it for products traded in an hour, in a day, or some form of continuous trading? How many markets should there be? Is a single real-time market sufficient, or should forward markets for hour-ahead or day-ahead trading also exist? What is the role of the market institution? Should the design be simply that of scheduling private transactions, or to serve as a centralised exchange or pool? What are the participation rules? In a clearing exchange or pool, are bids submitted for each hour, or is the same bid used for all hourly markets in a given day? How can late bids or trades be modified or withdrawn? Are there penalties for certain actions or non-performance? What is the impact of related markets, for example the market for gas storage facilities and the market for transmission rights? How much needs to be "centrally planned"? Will private exchanges and markets be allowed to compete with the established institutions? Can markets be designed that count on such private exchanges arising? Frontier staff have experience in all aspects of market design and auctions, and we have advised clients on these issues in a variety of industries.
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