Aquaculture Licenses: Auction Design & Implementation

Copenhagen Economics combined auction theoretical expertise with a detailed analysis of the industry at hand to identify the optimal auction format and rules for the allocation of new aquaculture licenses in Norway. With our assistance, the client implemented the auction format as recommended and achieved an average revenue of more than twice that of previous allocation rounds.

Every second year, the Norwegian Ministry of Trade, Industry & Fisheries is able to allocate a number of new licenses for the production of aquaculture in Norway.

Since aquaculture production (e.g. salmon farming) is a very profitable industry, many producers want to acquire these new licenses to expand on their current production. The Ministry needs to determine which producers should be allocated the available licenses, and at which prices. The Ministry requested our assistance to design an allocation mechanism that could solve this allocation problem; balancing their overall goal of revenue-maximisation with other considerations such as fairness, efficiency and simplicity.

Copenhagen Economics combined auction theoretical expertise with a detailed analysis of the aquaculture industry in Norway to identify the optimal allocation mechanism: a multi-round simple clock auction that enabled bidders to switch their demand between different production areas in response to fluctuating demand structures.

This auction format enabled the allocation of licenses of varying sizes (something which had not been possible in past allocation rounds), ensuring a level playing field between large and small producers, and furthermore ensured that producers would be able to accurately reflect their true willingness to pay for licenses via their bids.

With assistance from Copenhagen Economics and our partner software company, the Ministry implemented the specific auction format and regulations that we had recommended using custom-built online auction software. The auction achieved total revenue of 3 billion NOK, at an average price per ton MAB more than twice that of previous allocation rounds.