Séminaire

Just Starting Out: Learning and Equilibrium in a New Market

Econometrics and Empirical Economics /Industrial Organisation joint seminar

Ariel Pakes (Harvard University)

4 octobre 2017, 15h30–17h00

Salle MS 001

Econometrics and Empirical Economics Seminar

Résumé

We document the evolution of the new market for frequency response within the UK electricity system over a six-year period. Firms competed in price while facing considerable initial uncertainty about demand and rival behavior. We show that over time prices stabilized, converging to a rest point that is consistent with equilibrium play. We draw on models of fictitious play and adaptive learning to analyze how this convergence occurs and show that these models predict behavior better than an equilibrium model prior to convergence.

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