Price Formation in Large Markets: a mean field game approach

How do prices emerge from the collective actions of many market participants? This seminar explores how Mean Field Game (MFG) theory provides an elegant mathematical framework for understanding price formation in markets with numerous small players. Professor Gomes will examine models where agents can store and trade commodities while optimizing costs, leading to emergent price dynamics through supply and demand interactions. The approach reveals how individual preferences, storage constraints, and production uncertainties influence market prices. Drawing from recent advances in the field, we'll see how MFG models can capture realistic market features like price volatility and the impact of renewable energy sources. While the underlying mathematics can be complex, the key insights are intuitive and relevant for understanding real-world markets, from electricity trading to commodity pricing. This seminar will emphasize the intuition behind the models while keeping technical details accessible.