Basic knowledge for market principle: Approaches to the price coordination mechanism by using optimization theory and algorithm

Eitaro Aiyoshi, Kazuaki Masuda

Research output: Contribution to journalArticle

6 Citations (Scopus)

Abstract

On the basis of market fundamentalism, new types of social systems with the market mechanism such as electricity trading markets and carbon dioxide (CO2) emission trading markets have been developed. However, there are few textbooks in science and technology which present the explanation that Lagrange multipliers can be interpreted as market prices. This tutorial paper explains that (1) the steepest descent method for dual problems in optimization, and (2) Gauss-Seidel method for solving the stationary conditions of Lagrange problems with market principles, can formulate the mechanism of market pricing, which works even in the information-oriented modern society. The authors expect readers to acquire basic knowledge on optimization theory and algorithms related to economics and to utilize them for designing the mechanism of more complicated markets.

Original languageEnglish
Pages (from-to)534-539
Number of pages6
JournalIEEJ Transactions on Electronics, Information and Systems
Volume130
Issue number4
DOIs
Publication statusPublished - 2010

Keywords

  • Balance of demand and supply
  • Duality theory
  • Gauss-Seidel method
  • Market fundamentalism
  • Market price mechanism
  • Method of Lagrange multipliers
  • Steepest descent method

ASJC Scopus subject areas

  • Electrical and Electronic Engineering

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