Examples of Smart Markets
The term appears to have been first used by Rassenti, Smith, and Bulfin in 1982. That article proposed a combinatorial auction for airplane take-off and landing slots. The U.S. government is now seeking to implement such an auction.
The modern electricity market is an important example of a two-sided smart market., Electricity markets clear every few minutes, and require coordination to ensure that power generation matches demand, and that power flows do not exceed network line capacities. Generators offer to supply tranches of power at a range of prices. Wholesale power distributors bid to buy tranches of power at a range of prices. To clear the market, the market manager solves a linear program in which the decision variables are how much power to accept from each generator, the flow of power on each line, and how much power to provide to each distributor.
After solution, the primal variables prescribe the dispatch (that is, how much power each generator should produce). The dual variables provide the market clearing prices. By clearing the market based on the dual prices, participants are charged on marginal values, rather than as bid. Thus, every seller is guaranteed to receive at least as much as was bid and possibly more. Every buyer is guaranteed to pay no more than was offered, and possibly less. Without the smart market, the line operator, all generators, and all distributors would have to be part of a monopoly in order to guarantee system coordination.
Natural gas markets are sometimes cleared by smart markets, as in Australia . The system operator serves as the market manager. Operation of the gas pipeline network require coordination to ensure that gas supply matches demand, and that flows do not exceed pipe capacities. Gas suppliers offer a range of quantities at a range of prices. Distributors bid to buy a range of quantities at a range of prices. To clear the market, the market manager solves a linear program in which the decision variables are the gas to accept from each supplier, the flow of gas on each pipe segment, and how much gas to provide to each distributor. As with electricity markets, after solution, the primal variables prescribe the optimal flows, and the dual variables provide the market clearing prices. The objective minimizes the cost of supplying power.
The spectrum auction is a one-sided smart market which is cleared by an integer program. Participants purchase radio spectrum from government. These combinatorial auctions are cleared as bid, rather than at prices based on dual variables. Only recently have researchers found robust means to obtain dual variables from integer programs.
Companies and governments sometimes use smart markets in procurement, as for transportation services. The Chilean government, for example, uses a smart market to choose caterers for school meal programs. The University of Chicago Booth School of Business uses a smart market for course registration. The system ensures that the class seats go to those students who most want them, while ensuring that the number of students in each class stays within the room capacity.
Smart markets are now being proposed for environmental services, including water, The more sophisticated of these designs rely on hydrological optimization and hydrological run-off models.
Read more about this topic: Smart Market
Famous quotes containing the words examples of, examples, smart and/or markets:
“Histories are more full of examples of the fidelity of dogs than of friends.”
—Alexander Pope (1688–1744)
“There are many examples of women that have excelled in learning, and even in war, but this is no reason we should bring ‘em all up to Latin and Greek or else military discipline, instead of needle-work and housewifry.”
—Bernard Mandeville (1670–1733)
“The majority of persons choose their wives with as little prudence as they eat. They see a trull with nothing else to recommend her but a pair of thighs and choice hunkers, and so smart to void their seed that they marry her at once. They imagine they can live in marvelous contentment with handsome feet and ambrosial buttocks. Most men are accredited fools shortly after they leave the womb.”
—Edward Dahlberg (1900–1977)
“A free-enterprise economy depends only on markets, and according to the most advanced mathematical macroeconomic theory, markets depend only on moods: specifically, the mood of the men in the pinstripes, also known as the Boys on the Street. When the Boys are in a good mood, the market thrives; when they get scared or sullen, it is time for each one of us to look into the retail apple business.”
—Barbara Ehrenreich (b. 1941)