nep-reg New Economics Papers
on Regulation
Issue of 2012‒11‒17
eleven papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Competition before sunset: The case of the Finnish ATM market By Kopsakangas-Savolainen, Maria; Takalo, Tuomas
  2. “Entry Regulation Asymmetries and Gasoline Competition in a Mixed Motorway Network” By Daniel Albalate; Jordi Perdiguero
  3. Timing of adoption of clean technologies, transboundary pollution and international trade By Ben Jebli, Mehdi; Ben Youssef, Slim
  4. Environmental policies, product market regulation and innovation in renewable energy By Lionel Nesta; Francesco Vona; Francesco Nicolli
  5. Strategic Bypass Deterrence By Francis Bloch; Axel Gautier
  6. Optimal Allocation of Tradable Emission Permits under Upstream-Downstream Strategic Interaction By Giuseppe De Feo; Joana Resende; Maria Eugenia Sanin
  7. Advantaged Bidders in Franchise Auctions By Vincent van den Berg
  8. How do GM / non GM coexistence regulations affect markets and welfare? By Desquilbet, Marion; Poret, Sylvaine
  9. An Empirical Investigation of the Determinants of Asymmetric Pricing By Marc Remer
  10. Mandatory versus Discretionary Spending: The Status Quo Effect By Bowen, T. Renee; Chen, Ying; Eraslan, Hulya
  11. Public support for the European car industry: an integrated analysis By Laura GRIGOLON; Nina LEHEYDA; Frank VERBOVEN

  1. By: Kopsakangas-Savolainen, Maria (Finnish Environment Institute); Takalo, Tuomas (Bank of Finland Research)
    Abstract: We build a simple model to study service fee competition between an incumbent and an independent ATM deployer, and its optimal regulation. We use the model to analyze an actual regulation of such a market by competition authorities in Finland. We find that socially optimal first-best fees would imply negative profits for the independent deployer, calling for a Ramsey regulation. While the Finnish regulation pushes the foreign fee downwards towards its socially optimal level, the regulated fees are likely to remain too high from the welfare point of view. In contrast with the actual regulation, it would be essential to regulate the independent deployer's interchange fee, as the incumbent deployer internalizes the effect of its foreign fee on consumer usage of the rival's network and has little incentive for foreclosure.
    Keywords: ATM industry; regulation; competition policy; cash availability; retail payments
    JEL: G23 K21 L13 L41 L51
    Date: 2012–11–08
  2. By: Daniel Albalate (Faculty of Economics, University of Barcelona); Jordi Perdiguero (Departament d'Economia Aplicada. Universitat Autònoma de Barcelona)
    Abstract: Regulatory and funding asymmetries in the Spanish motorway network produce huge differences in the structure of gasoline markets by motorway type: free or toll. While competition is encouraged among gas stations on free motorways, the regulations for toll motorways allow private concessionaires to auction all gas stations to the same provider, thereby limiting competition and consolidating market power. This paper reports how this regulatory asymmetry results in higher prices and fewer gas stations. Specifically, we show that competition is constrained on toll motorways by the granting of geographical monopolies, resulting in a small number of rivals operating in close proximity to each other, and allowing gas stations to operate as local monopolies. The lack of competition would seem to account for the price differential between toll and free motorways. According to available evidence, deregulation measures affecting toll motorway concessions could help to mitigate price inefficiencies and increase consumer welfare.
    Keywords: Geographical competition, Regional Monopolies, Gasoline prices, Motorways JEL classification: L11, L12, L43
    Date: 2012–11
  3. By: Ben Jebli, Mehdi; Ben Youssef, Slim
    Abstract: We consider a symmetric model composed of two countries and a firm in each country. Firms produce the same good by means of a polluting technology that uses fossil energy. However, these firms can adopt a clean technology that uses a renewable energy and that has a lower unit cost. Surprisingly, opening markets to international competition increases the per-unit emission-tax and decreases the per-unit production subsidy. Interestingly, the socially-optimal adoption date under a common market better internalizes transboundary pollution than that under autarky, and than the optimal adoption date of regulated firms. However, the optimal adoption date of non-regulated firms completely don't internalize transboundary pollution. In autarky (resp. a common market), regulated firms adopt earlier (resp. later) than what is socially-optimal, whereas non-regulated firms adopt later than the socially-optimal adoption date and than the optimal adoption date of regulated firms. Therefore, in autarky (resp. a common market) regulators can induce firms to adopt at the socially-optimal adoption date by giving them postpone ( resp. speed up) adoption subsidies. Opening markets to international trade, speeds up the socially-optimal adoption date and delays optimal adoption dates of regulated and non-regulated firms.
    Keywords: Regulation; Adoption date; Renewable energy; Transboundary pollution; Common market
    JEL: O38 L51 D62 Q55 O13 O32 H23 F18 Q27 C72
    Date: 2012–11
  4. By: Lionel Nesta (Ofce sciences-po); Francesco Vona (Observatoire Francais des Conjonctures Economiques Author-Workplace-Postal :69, quai d'Orsay, Paris 75007, France); Francesco Nicolli (University of Ferrara)
    Abstract: We investigate the effectiveness of policies in favor of innovation in renew- able energy under dierent levels of competition. Using information regarding renewable energy policies, product market regulation and high-quality green patents for OECD countries since the late 1970s, we develop a pre-sample mean count-data econometric specification that also accounts for the endogeneity of policies. We nd that renewable energy policies are significantly more effective in fostering green innovation in countries with deregulated energy markets. We also nd that public support for renewable energy is crucial only in the genera- tion of high-quality green patents, whereas competition enhances the generation of green patents irrespective of their quality.
    Keywords: renwable energy technology, patents,environmental policies, product market regulation,policy complementarity
    JEL: Q55 Q58 Q42 Q48 O34
    Date: 2012–10
  5. By: Francis Bloch (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X); Axel Gautier (HEC-University of Liège - Department of Economics, CORE - Center of Operation Research and Econometrics [Louvain] - Université Catholique de Louvain)
    Abstract: In liberalized network industries, entrants can either compete for service using the existing infrastructure (access) or deploy their own infrastructure capacity (bypass). In this paper, we demonstrate that, under the threat of bypass, the access price set by an unregulated and vertically integrated incumbent is compatible with productive effi ciency. This means that the entrant bypasses the existing infrastructure only if it can produces the network input more effi ciently. We show that the incumbent lowers the access price compared to the ex-post effi cient level to strategically deter ineffi cient bypass by the entrant. Accordingly, from a productive effi ciency point of view, there is no need to regulate access prices when the entrant has the option to bypass. Despite that, we show that restricting the possibilities of access might be profi table for consumers and welfare because competition is fi ercer under bypass.
    Keywords: Make-or-buy, Access price, Bypass
    Date: 2012–11–07
  6. By: Giuseppe De Feo (Department of Economics and Management, University of Pavia and University of Strathclyde); Joana Resende (University of Porto and Cef.up); Maria Eugenia Sanin (University of Montpellier)
    Abstract: In this paper we analyze environmental regulation based on tradable emission permits in the presence of strategic interaction in an output market with differentiated products. We characterize firms' equilibrium behavior in the permits and in the output market and we show that both firms adopt "rival's cost-rising strategies". Then, we study the problem of the regulator that aims to maximize social welfare, proposing an efficient criterion to allocate permits between firms. We find that the optimal allocation criterion requires a perfect balance between the difference on firms' price-cost margins in the permits and the difference on firms' mark ups in the output market. In light of the previous result, we use a simulation to obtain the optimal allocation of permits between firms as a function of output market characteristics, in particular as a function of goods substitutability.
    Date: 2012–11
  7. By: Vincent van den Berg (VU University Amsterdam)
    Abstract: Consider a government that auctions a franchise for, e.g., an airport, telecommunication network, or utility. Consider an 'incumbent bidder' that owns a complement or substitute. With an auction on the transfer (i.e. payment) to the government, the incumbent is advantaged.If the government regulates the market with an auction on the price asked to consumers, it depends who is advantaged. With complements, the incumbent is advantaged: it can set a lower price on the new franchise, as this increases the profit of the other. With substitutes, the incumbent is disadvantaged. In many settings, the advantage bidder always wins.
    Keywords: Franchising; auctions; advantaged bidders; incumbent; private supply; regulatory auctions
    JEL: D43 L13 L51 R41 R42
    Date: 2012–11–02
  8. By: Desquilbet, Marion (TSE (INRA,GREMAQ)); Poret, Sylvaine (Polytechnique(INRA))
    Abstract: This paper presents a theoretical economic model assessing the effects of the level of mandatory genetically modified (GM) / non-GM coexistence regulations on market and welfare outcomes. We assume vertical differentiation of GM and non-GM goods on the consumer side. Producers are heterogeneous in their production cost for GM crops. Producers of non- GM crops face a probability of having their harvest downgraded if gene flow from GM fields raises its content in GMOs (genetically modified organisms) above the labeling threshold. The government may impose on GMO producers mandatory ex ante isolation distances from non- GM fields in order to decrease the probability of non-GM harvest downgrading. It may also introduce an ex post compensation to non-GMO farmers for profit losses due to harvest downgrading, imposing GMO farmers’ participation to a compensation fund via a tax on GM seeds. Assuming endogenous crop choices and prices, we study the effects of ex ante regulation and ex post liability of GMO producers on market equilibrium, on the achievement of coexistence, and on both global and interest group welfare.
    Keywords: genetically modified organisms, coexistence, identity preservation, regulation, liability, vertical differentiation, law and economics.
    JEL: D62 H23 K32 L15
    Date: 2012–11
  9. By: Marc Remer (Economic Analysis Group, Antitrust Division, U.S. Department of Justice)
    Abstract: This article empirically investigates the cause of asymmetric pricing: retail prices responding faster to cost increases than decreases. Using daily price data for over 11,000 retail gasoline stations, I nd that prices fall more slowly than they rise as a consequence of rms extracting informational rents from consumers with positive search costs. Premium gasoline prices are shown to fall more slowly than regular fuel prices but rise at the same pace, and this pricing pattern supports theories based upon competition with consumer search. Further testing also rejects focal price collusion as an important determinant of asymmetric pricing.
    Date: 2012–11
  10. By: Bowen, T. Renee (Stanford University); Chen, Ying (AZ State University); Eraslan, Hulya (Johns Hopkins University)
    Abstract: Do mandatory spending programs such as Medicare improve efficiency? We analyze a model with two parties allocating a fixed budget to a public good and private transfers each period over an infinite horizon. We compare two institutions that differ in whether public good spending is discretionary or mandatory. We model mandatory spending as an endogenous status quo since it is enacted by law and remains in effect until changed. Mandatory programs result in higher public good spending; furthermore, they ex ante Pareto dominate discretionary programs when parties are patient, persistence of power is low, and polarization is low.
    JEL: C73 D61 D78
    Date: 2012–10
  11. By: Laura GRIGOLON; Nina LEHEYDA; Frank VERBOVEN
    Abstract: We provide an overview of public support for the European car industry during the past decade. First, we identify the most relevant instruments of public support, and review their economic assessment. The European Commission increasingly recognizes the role of economic analysis in controlling public aid to the car industry, although the degree of economic assessment varies across different instruments of public support and individual state aid cases. Moreover, the state aid legislative framework is open to derogations and interpretations. In particular, the Temporary Framework, approved by the Commission to tackle the last financial and economic crisis de facto implied a relaxation of the state aid rules and foresaw no formal control of individual state aids. Second, we aim to estimate the amount of public support for European car manufacturers. Three factors complicate the overall quantification of public support for each instrument: (i) the Commission does not scrutinize, and hence does not quantify all public support measures; (ii) the available information depends on whether the state aid is granted to individual companies or in the form of general schemes; and (iii) the available information depends on whether the aid is granted in the form of a grant, soft loan or guarantee. Our lower bound estimate of state aid suggests that the aid declined over the pre-crisis period, but peaked at e1.2 billion as a response to the last financial and economic crisis in 2009. Perhaps even more strikingly, this state aid was combined with an unprecedented amount of public support granted through scrapping schemes of at least €4.0 billion, and loans from the European Investment Bank of €2.8 billion, or an equivalent of €400 million of .aid element.. In conclusion, the existence of multiple public support instruments at different levels may create coordination problems and a lack of transparency, in spite of the Commission’s efforts. The lack of transparency in turn poses a challenge for the quantification of state aid and non-state aid support to any industry or sector. This paper provides a first step towards informing the policy debate on the effects of public support to the car sector, and also stimulates the academic interest in the subject of state aid, and - more generally - public transfers to companies.
    Date: 2012–10

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