Optimal market design
AbstractThis paper introduces three methodological advances to study the optimal design of static and dynamic markets. First, we apply a mechanism design approach to characterize all incentive-compatible market equilibria. Second, we conduct a normative analysis, i.e. we evaluate alternative competition and innovation policies from a welfare perspective. Third, we introduce a reliable way to measure competition in dynamic markets with non-linear pricing. We illustrate the usefulness of our approach in several ways. We reproduce the empirical finding that innovation levels are higher in markets with lower price-cost margins, yet such markets are not necessarily more competitive. Indeed, we prove the Schumpeterian conjecture that more dynamic markets characterized by higher levels of innovation should be less competitive. Furthermore, we demonstrate how our approach can be used to determine the optimal combination of market regulation and innovation policies such as R&D subsidies or a weakening of the patent system. Finally, we show that optimal markets are characterized by strictly positive price-cost margins.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7736.
Date of creation: Mar 2010
Date of revision:
Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
Other versions of this item:
- Jan Boone & Jacob K. Goeree, 2010. "Optimal market design," IEW - Working Papers 479, Institute for Empirical Research in Economics - University of Zurich.
- Boone, J. & Goeree, J.K., 2010. "Optimal Market Design," Discussion Paper 2010-25, Tilburg University, Center for Economic Research.
- Boone, J. & Goeree, J.K., 2010. "Optimal Market Design," Discussion Paper 2010-011, Tilburg University, Tilburg Law and Economic Center.
- K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
- L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gilbert, Richard & Tom, Willard K., 2001. "Is Innovation King at the Antitrust Agencies? The Intellectual Property Guidelines Five Years Later," Competition Policy Center, Working Paper Series qt8zv6b8c5, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
- Howitt, Peter & Griffith, Rachel & Aghion, Philippe & Blundell, Richard & Bloom, Nick, 2005.
"Competition and Innovation: An Inverted-U Relationship,"
4481507, Harvard University Department of Economics.
- Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: An Inverted-U Relationship," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 701-728, May.
- Philippe Aghion & Nicholas Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2002. "Competition and innovation: an inverted U relationship," IFS Working Papers W02/04, Institute for Fiscal Studies.
- Philippe Aghion & Nicholas Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2002. "Competition and Innovation: An Inverted U Relationship," NBER Working Papers 9269, National Bureau of Economic Research, Inc.
- José E. Galdón-Sánchez & James A. Schmitz Jr., 2002.
"Competitive Pressure and Labor Productivity: World Iron-Ore Markets in the 1980's,"
American Economic Review,
American Economic Association, vol. 92(4), pages 1222-1235, September.
- Jose E. Galdon-Sanchez & James A. Schmitz, Jr., 2003. "Competitive pressure and labor productivity: world iron ore markets in the 1980s," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 9-23.
- Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743.
- Nickell, Stephen J, 1996.
"Competition and Corporate Performance,"
Journal of Political Economy,
University of Chicago Press, vol. 104(4), pages 724-46, August.
- Boone, Jan, 2004.
"A New Way to Measure Competition,"
CEPR Discussion Papers
4330, C.E.P.R. Discussion Papers.
- Gilbert, Richard & Tom, Willard K, 2001. "Is Innovation King at the Antitrust Agencies? The Intellectual Property Guidelines Five Years Later," Department of Economics, Working Paper Series qt4mf5t2bm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- David S. Evans & Richard Schmalensee, 2002.
"Some Economic Aspects of Antitrust Analysis in Dynamically Competitive Industries,"
in: Innovation Policy and the Economy, Volume 2, pages 1-50
National Bureau of Economic Research, Inc.
- David S. Evans & Richard Schmalensee, 2001. "Some Economic Aspects of Antitrust Analysis in Dynamically Competitive Industries," NBER Working Papers 8268, National Bureau of Economic Research, Inc.
- George Symeonidis, 2002. "The Effects of Competition: Cartel Policy and the Evolution of Strategy and Structure in British Industry," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262194686.
- Schmutzler, Armin, 2010.
"The relation between competition and innovation -- Why is it such a mess?,"
CEPR Discussion Papers
7640, C.E.P.R. Discussion Papers.
- Armin Schmutzler, 2007. "The relation between competition and innovation – Why is it such a mess?," Working Papers 0716, University of Zurich, Socioeconomic Institute, revised Jan 2010.
- Boone, J., 2000.
2000-104, Tilburg University, Center for Economic Research.
- Hahn, Robert W., 2001. "A Primer on Competition Policy and the New Economy," Working paper 266, Regulation2point0.
- Ilya Segal & Michael D. Whinston, 2007. "Antitrust in Innovative Industries," American Economic Review, American Economic Association, vol. 97(5), pages 1703-1730, December.
- Andrea Bassanini & Ekkehard Ernst, 2002. "Labour Market Institutions, Product Market Regulation, and Innovation: Cross-Country Evidence," OECD Economics Department Working Papers 316, OECD Publishing.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.