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10/19: John Birge – Spatial Price Integration in Commodity Markets with Capacitated Transportation Networks
October 19 @ 3:30 pm - 4:30 pm
Abstract: Spatial price integration is extensively studied in commodity markets as a means of examining the degree of integration between regions of a geographically diverse market. In many markets, the market is bound together by a well-defined transportation network, such as the network of pipelines in oil and gas markets. In this paper, we analyze the relationship between price integration, i.e. the distribution of prices across geographically distinct locations in the market, and the features of the underlying transportation network. We characterize this relationship and show that price integration is strongly influenced by the parameters of the transportation network, especially when there are capacity constraints on certain links in the network. Our results are summarized using a price decomposition which explicitly isolates the influences of market forces (supply and demand), transportation costs and capacity constraints among a set of prices. Using this price decomposition, we develop a novel methodology to capture spatio-temporal price variations indicative underlying network bottlenecks using pricing data alone. Applying the methodology to gasoline prices in the southeastern US, we find the methodology e ffectively characterizes the e ects of well-documented network disruptions, and also provides evidence of capacity-driven price disruptions during normal operations.
Bio: John R. Birge is the Hobart W. Williams Distinguished Service Professor of Operations Management at the University of Chicago Booth School of Business. He studies mathematical modeling of systems under uncertainty, especially for maximizing operational and financial goals using the methodologies of stochastic programming and large-scale optimization. In the energy sector, his interest has focused on mechanisms for including uncertainty considerations into electric power unit commitment and capacity investment decisions. He has published widely and is the recipient of the Best Paper Award from the Japan Society for Industrial and Applied Mathematics, the Institute for Operations Research and the Management Sciences Fellows Award, the Institute of Industrial Engineers Medallion Award and was elected to the National Academy of Engineering.
A former dean of the Robert R. McCormick School of Engineering and Applied Sciences at Northwestern University, he has worked as a consultant for a variety of firms including the University of Michigan Hospitals, Deutsche Bank, Allstate Insurance Company, and Morgan Stanley.
Birge earned a bachelor’s degree in mathematics from Princeton University in 1977 and a master’s degree and a PhD in operations research from Stanford University in 1979 and 1980, respectively.