Bio- and regenera- tive Medicine as an important growth Market

22 HHL RESEARCH REPORT 2012 ECOnOMiCS And REguLATiOn 23
The graph illustrates the practical importance
of market design in the context of wireless
spectrum auctions. Government revenues in
various European countries ended up being
vastly different depending on the specific
auction format which was adopted.
uS$/PoP
3g auction priceS
For 2 x 10 MHZ + 5 MHZ
NEw ENtRANt SEt ASiDE:
ENtRANt MUST WIN
107.2
NEw
ENtRANt wiNS
93.1
uK
4/00
oNLy
iNCuMBENtS
wiN
24.7
DutCH
4/00
GERMAN
8/00
GREAtER
CLARity ABout
wHo wiLL wiN
35.2
itALiAN
10/00
15.3
AuStRiAN
11/00
2.6
SwiSS
11/00
13.2
BELGiuM
3/01
cHair oF econoMic and inForMation SYSteMS
How can Market
Mechanisms
be made more
efficient and
transparent?
Economic theory deals with rational
decisions within and outside of markets
and therefore provides a uniform
language and methodology in many
fields of business economics. Professor
Pierfrancesco La Mura’s main research
is to be found at the interface of economics
and computer sciences. He
thereby focuses on decision theory
basics of game theory and artificial
intelligence.
Professor La Mura, why are market
design theories important for political
decisions and market regulation?
Professor Pierfrancesco la Mura:
Current market failures showed that
Adam Smith’s idea of naturally self-regulating
markets does not always hold true
in reality . The intuition of the classical
approach to economics is the following:
if you let each consumer choose freely
what to buy and each producer freely
what to sell, then the market will settle
on an efficient product allocation and
price, hence maximizing the benefits for
the society as a whole . However, financial
crises and thousands of other examples
of market failures contradict these
intuitive conclusions . More recently,
mechanism design theorists came to
one of the most remarkable negative
results in economics – they showed that
there is no efficient way for two parties
to trade a good for which they have
secret reservation values .
What does that mean precisely?
Professor la Mura: The fact that we
all possess some private information
and do not know the information of
others (we can, of course, guess but do
not know it for sure) might lead to some
undesirable behavior by market participants
(for example; insider trading, and
other sorts of manipulations) and this
might result in inefficiency . If we come
back to a simple example of trade – if a
seller exploits the fact that the buyer is
not familiar with the real costs of producing
a good and asks for too high a
price, the buyer might simply not buy the
good even if there was a potential gain
from trade . Mechanism design theory
offers a solution to such situations –
to develop a set of rules (regulations)
which all participants are obliged to follow
and which enable the revelation of
private information in a way that leads
to mutual benefits for buyers and sellers .
Can you give an example for your thesis?
Professor la Mura: Market failures are
not rare . I already mentioned the example
of financial crises . Another famous
example of bad mechanism design is
the case of liberalization of the energy
sector in the US in the 90s . The introduction
of an auction mechanism for
setting the prices for energy sources and
for booking of the capacities in the pipelines,
without considering the right set
of “rules” and incentives for the traders
led to a series of blackouts in California
because the mechanism allowed for
manipulations which were used by big
energy companies such as Enron . It is
important to analyze the conditions and
problems of those examples to be able to
avoid the repetition of these situations
in Europe .
Let us talk about another important
point that keeps appearing in the headlines:
the formation of cartels, e.g. in
the petroleum industry or in energy
markets. To what extent has this topic
been researched?
Professor la Mura: The vulnerability
of markets to the creation and
More value for real
estate Markets
Selling or buying a house is, for most
people, an important financial decision,
but also a source of significant
stress . Whether it’s through private
negotiation, perhaps facilitated by
brokers, or through a real-estate
auction, only rarely is a buyer or
seller able to obtain the most favorable
deal on the market . Professor
La Mura and Dr . Lukasz Swiatczak
developed an electronic trading
platform, eptrader, which improves
on existing marketplaces by combining
a double-auction design
with an element of negotiation .
The patented design allows buyers
to place interconnected bids across
objects, giving them more control on
the trading process . The marketplace
is built in such a way that the
information contributed by buyers
or sellers is never used against them:
as a consequence, the participants
do not need to enact complicated
strategies . Unlike auction platforms,
eptrader only sets final prices when
the competition among buyers or
sellers is sufficient to determine
them: in all other cases it only sets
price ranges, which can then be used
by each optimally-matched buyer
and seller as the basis for a more
focused, effective negotiation .
Professor La Mura and Dr. Swiatczak are
in the process of commercializing their
solution among existing real estate portals
and online marketplaces.
cHair oF econoMicS
and inForMation
SYSteMS
cHairHolder
Prof. Pierfrancesco La Mura, Ph.d.
core coMpetencieS/
reSearcH intereSt
• interface of economics
and computer
sciences
• focus on theory basics of game
theory and artificial intelligence
contact
www.hhl.de/informationsystems