Name and explain for market performance criteria's

• Allocation Efficiency: Select the outcome that maximizes total utility.
• Fairness: Select outcome that minimizes the variance in utility - utility gain of all players is similar.
• Revenue Maximization: Select outcome that maximizes revenue to a seller - auction strives to higher selling price.
• Budget Balance: Implement outcomes that have balanced transfers across agents - market should not be targeted on one particular buyer
• Incentive Compatibility: When the best strategy is to truthfully reveal any private information required by a mechanism, and not to cheat - Vicrey Auction
• Speed of Convergence: all taken actions lead to an expected system state or equilibrium
• Privacy Conservation: Guarantee of privacy to restrain other agents from learning from private information. Private information stay private, like bids in sealed bid auction
• Computational Costs: The computational requirements to reach equilibrium and compute the allocation. Perfect market model is not applicable if calculation is NP Hard
• Individual Rationality: Agents are not negatively affected by having taken part - no price for taking a part in auction, otherwise negative utility for all players except winner
• Pareto Optimality: No change in allocation can improve the payoff for one agent without a negative effect to another - nothing left on the table, each object allocated to agents, that gain some utility from it.
• Equilibrium: It is possible to reach an equilibrium state perhaps also under certain conditions
• Stability: Existence of preferred choices, that need to be matched
• Information Efficiency: The degree to which prices reflect the information available in the market.
• Simplicity: Simplicity refers to the comprehensibility of the institutional rules. In case the rules are too complex, the agents have problems to form their strategy.

How can be allocation efficiency be measured?

• Market Liquidity is traditionally used to measure Allocation Efficiency - how many sellers, buyers there are, transaction amount.

How to measure performance of markets?

• Government Construction Land Auction: overall reduction of land consumption, welfare, consumption rate of fiscally worthwhile land, etc.
• Airbnb: price level, willingness to pay, revenue, number of providers (hosts) / consumers (guests) / transactions (bookings)
• Prediction Market: accuracy of predictions, liquidity, user feedback
• Local Energy Markets: market liquidity, market prices, local energy autarky, user feedback

What elements belong to the “Economic and Legal Environment” of a Market and how can a market designer take influence on this?

• External circumstances: embedding in existing products or markets, usage of play-money (otherwise subject to gambling laws), strict energy regulations, legal requirements on market robustness and availability
• Agents characteristics: planners from local authorities, private persons, traders
• Demand and supply affecting factors: public interest, prices, social experience, amount of buyers and sellers, public visibility

Explain the components of the framework of analysis by Smith

• Outcome - allocation, prices

• System Performance - efficiency, revenue

• Institution - existing rule systems, procedural structure

• Agent Behavior - how do agents act on the market, based on market rules (institutions)

• Economic Environment - preferences, resources, existing competitors

  

Where are differences between the Microeconomic System (Smith) and the House of Market Engineering?

• Microeconomic System of Smith does not take the Legal Environment into account
• Smith does not consider the Transaction Object
• Smith consider the institution (similar to market structure) as one block, the House of Market Engineering has a Market Structure block that contains Micro Structure, IT-Infrastructure and Business Structure