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Optimal Pricing in Markets with Non-Convex Costs

Azizan, Navid and Su, Yu and Dvijotham, Krishnamurthy and Wierman, Adam (2019) Optimal Pricing in Markets with Non-Convex Costs. In: Proceedings of the 2019 ACM Conference on Economics and Computation. Association for Computing Machinery , New York, NY, p. 595. ISBN 978-1-4503-6792-9. https://resolver.caltech.edu/CaltechAUTHORS:20190625-114233447

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Abstract

We consider a market run by an operator who seeks to satisfy a given consumer demand for a commodity by purchasing the needed amount from a group of competing suppliers with non-convex cost functions. The operator knows the suppliers' cost functions and announces a price/payment function for each supplier, which determines the payment to that supplier for producing different quantities. Each supplier then makes an individual decision about how much to produce (and whether to participate at all), in order to maximize its own profit. The key question is how to design the price functions. This problem is relevant for many applications, including electricity markets. The main contribution of this paper is the introduction of a new pricing scheme, \name (\acr ) pricing, which is applicable to general non-convex costs, allows using general parametric price functions, and guarantees market clearing, revenue adequacy, and ecomonic efficiency while supporting comptitive euqilibrium. The name of this scheme stems from the fact that we directly impose all the equilibrium conditions as constraints in the optimization problem for finding the best allocations, as opposed to adjusting the prices later to make the allocations an equilibrium. While the optimization problem is, of course, non-convex, and non-convex problems are intractable in general, we present a tractable approximation algorithm for solving the proposed optimization problem. Our framework extends to the case of networked markets, which, to the best of our knowledge, has not been considered in previous work.


Item Type:Book Section
Related URLs:
URLURL TypeDescription
https://doi.org/10.1145/3328526.3329575DOIArticle
http://dx.doi.org/10.2139/ssrn.3365416SSRNDiscussion Paper
ORCID:
AuthorORCID
Azizan, Navid0000-0002-4299-2963
Dvijotham, Krishnamurthy0000-0002-1328-4677
Additional Information:© 2019 ACM.
Subject Keywords:non-convexities; pricing; market-clearing price; networked market
Record Number:CaltechAUTHORS:20190625-114233447
Persistent URL:https://resolver.caltech.edu/CaltechAUTHORS:20190625-114233447
Official Citation:Navid Azizan, Yu Su, Krishnamurthy Dvijotham, and Adam Wierman. 2019. Optimal Pricing in Markets with Non-Convex Costs. In The 20th ACM conference on Economics and Computation (EC ’19), June 24–28, 2019, Phoenix, AZ, USA. ACM, New York, NY, USA, 1 page. https://doi.org/10.1145/3328526.3329575
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:96699
Collection:CaltechAUTHORS
Deposited By: Tony Diaz
Deposited On:25 Jun 2019 19:45
Last Modified:03 Oct 2019 21:24

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