MMI

Modelling Market Interaction

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 Obiettivo del progetto (Objective)

'It is widely recognised that the standard notion of market equilibrium omits many aspects of how real markets function. Who sets prices, who trades with whom and how the market settles, if it does on a single price for each good are largely unanswered questions. To obtain an understanding of how markets actually function and their dynamics, we have to allow for the different degrees of rationality of market participants, learning mechanisms and the structure of the interactions between the various agents. The idea of this project is to base the analysis on observed empirical facts and the basic claim is that markets have to be analysed as complex adaptive systems, where each institution and set of rules influences individual behaviours in a specific way. Our modelling approach is a mix of different research methodologies: empirical, theoretical, experimental, and computational. The present project will concentrate on two market environments, i.e., perishable goods market and electricity markets. In the former, the goods are not storable and thus inter-temporal arbitrage opportunities do not occur, whereas the latter is a paradigmatic example of complex market where multi-settlement market mechanisms are a standard feature. This research will have a strong social impact as poorly functioning market mechanisms can lead to high prices and to price discrimination, which are current strong concerns in Europe as a result of the recent increase in inflation and the complicated contagious feedback from prices to expectations and consumer confidence. My training in computer science, engineering and economics gives me the necessary experimental and theoretical background to carry out this study. Very encouraging preliminary results have already been obtained in collaboration with the research group in Marseille and within the context of the STREP, “ComplexMarkets”. The project results should be of interest to a wide audience of researchers in economics and to policymakers.'

Introduzione (Teaser)

New approaches to creating viable evaluation models of energy markets such as in the electricity sector can help policymakers and private players increase these markets' efficiency.

Descrizione progetto (Article)

The complex dynamics of the energy market are ever changing, requiring smarter research, analysis and evaluation to ensure it remains healthy. The EU-funded project 'Modelling market interaction' (MMI) strove to study and model markets as complex adaptive systems based on collective rationality rather than that of individuals.

The project aimed to enhance economic knowledge about energy and perishable goods markets through advanced mathematical and computational economics, in addition to empirical and experimental studies. It sought to develop an agent-based software framework for modelling and studying real electricity markets.

MMI successfully developed and tested a viable agent-based software platform to model and examine the electricity market, focusing on the liberalised sector of production. It exploited an agent-based computational approach and intensive research in experimental economics to broaden the understanding of rationality models.

This reveals how a strong internal energy market can support sustainable and affordable energy supply in Europe. The internal electricity market simulator can help private and public institutions evaluate relevant policies and has already piqued the interest of such organisations, including consulting companies and energy operators.

Ongoing activities with involved institutions and key players from the private sector could, for example, examine the effect on market performance of large investments in renewable technologies. The project's outcomes have been distributed among stakeholders through publications, conferences, seminars and workshops, bringing promising improvements to the multi-faceted energy market and its policies.