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| Author: | Fabra, N. Fehr, N.M. von der Frutos, M. de |
| Title: | Market design and investment incentives |
| Journal: | Economic Journal
2011 : DEC, VOL 121:557 p. 1340-1360 |
| Index terms: | markets auctions bidding incentives price control |
| Freeterms: | economic models |
| Language: | eng |
| Abstract: | This study aims to improve understanding of how market design impacts market performance through its effect on investment incentives. For this purpose, capacity choices by two ex ante identical firms competing in the product market are modeled. We analyze various market design elements, including (i) two often used auction formats, the uniform-price and discriminatory auctions, (ii) price caps and (iii) bid duration. It is found that although the discriminatory auction has a tendency to lower prices, this does not imply that investment incentives at the margin are weaker; indeed, aggregate capacity is equal under both auction formats. |
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