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In economics, a price mechanism is the manner in which the profits of goods or services affects the supply and demand of goods and services, principally by the price elasticity of demand. A price mechanism affects both buyer and seller who negotiate prices. A price mechanism, part of a market system, comprises various ways to match up buyers and sellers. The price mechanism is an economic model where price plays a key role in directing the activities of producers, consumers, and resource suppliers. An example of a price mechanism uses announced bid and ask prices. Generally speaking, when two parties wish to engage in trade, the purchaser will announce a price he is willing to pay (the bid price) and the seller will announce a price he is willing to accept (the ask price). The primary advantage of such a method is that conditions are laid out in advance, and transactions can proceed with no further permission or authorization from any participant. When any bid and ask pair are compatible, a transaction occurs, in most cases automatically. Samuelson wrote that "the price mechanism, working through supply and demand in competitive markets, operates to (simultaneously) answer the three fundamental problems of economic organization in our mixed private enterprise system..." and establish an equilibrium system of prices and production. At competitive equilibrium, the value society places on a good is equivalent to the value of the resources given up to produce it (marginal benefit equals marginal cost). This ensures allocative efficiency: the additional value society places on another unit of the good is equal to what society must give up in resources to produce it. Under a price mechanism, if demand increases, prices will rise, causing a movement along the supply curve. For example: the oil crisis of the 1970s drove oil prices dramatically upwards, which in turn caused several countries to begin producing oil domestically. A price mechanism affects every economic situation in the long term.

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Game theoretic analysis of electricity market auction mechanisms

Maryam Kamgarpour, Orcun Karaca

We consider two prominent mechanisms for the electricity market; the pay-as-bid mechanism, currently applied in certain control reserve markets, and the proposed Vickrey- Clarke-Groves mechanism, an established auction mechanism used in advertising and spectrum auctions, for example. Bringing in tools from game theory and auction theory, we compare the Nash equilibria of these two mechanisms in terms of social efficiency and strategic behavior of the players. Furthermore, by formulating a coalitional game corresponding to the electricity market, we propose alternative mechanisms that incentivize truthful bidding while ensuring shill bidding is not profitable. Finally, we analyze the proposed mechanisms in a case study based on electricity market data.

IEEE2017

Price mechanism

Market (economics)

In economics, a market is a composition of systems, institutions, procedures, social relations or infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services (including labour power) to buyers in exchange for money. It can be said that a market is the process by which the prices of goods and services are established. Markets facilitate trade and enable the distribution and allocation of resources in a society.

Capitalism

Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price systems, private property, property rights recognition, voluntary exchange, and wage labor. In a market economy, decision-making and investments are determined by owners of wealth, property, or ability to maneuver capital or production ability in capital and financial markets—whereas prices and the distribution of goods and services are mainly determined by competition in goods and services markets.

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