nep-reg New Economics Papers
on Regulation
Issue of 2015‒02‒22
twelve papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Geographic regulation and cooperative investment in next generation broadband networks By Balmer, Roberto E.
  2. The impact of local loop and retail unbundling By Klein, Gordon J.; Wendel, Julia
  3. The Impact of Carbon Trading on Industry: Evidence from German Manufacturing Firms By Wagner, Ulrich; Petrick, Sebastian
  4. How Do Drug Prices Respond to a Change from External to Internal Reference Pricing? Evidence from a Danish Regulatory Reform By Ulrich Kaiser; Susan J. Méndez
  5. Competition and market strategies in the Swiss fixed telephony market By Balmer, Roberto E.
  7. The Political Economy of Renewable Energies By Isabelle CADORET; Fabio PADOVANO
  8. Understanding broadband under-utilization in Japan By Bourna, Maria; Mitomo, Hitoshi
  9. Does the Quality of Electricity Matter? Evidence from Rural India By Ujjayant Chakravorty; Martino Pelli; Beyza Ural Marchand
  10. Bundling incentives in markets with product complementarities: The case of triple-play By Macieira, João; Pereira, Pedro; Vareda, João
  11. Network Access and Market Power By Orlova, Ekaterina; Hubert, Franz
  12. Sequential Markets, Market Power and Arbitrage By ITO Koichiro; Mar REGUANT

  1. By: Balmer, Roberto E.
    Abstract: Alternative telecommunications operators have continuously invested in their own infrastructure in recent years. After more than a decade since liberalization, competitive conditions have substantially changed, especially in urban areas. European regulatory authorities have acknowledged this development by starting regional deregulation. Additionally, different forms of cooperative investments in next generation broadband have appeared on the market. The effects of such schemes on competition, investment and welfare crucially depend on the fine details of implementation. For instance, in the case of joint ventures, it matters how investment costs are shared and how internal and external access prices are determined. In the case of long-term access agreements, it is essential to consider how access tariffs are structured, whether they can adapt to market developments ex-post and whether contracts are signed before or after the investment takes place. Generally, many of these agreements allow some extent of risk sharing, offering the possibility to increase investment incentives when firms are not risk neutral. This article reviews the theoretical and empirical literature on geographic regulation and co-investments in next generation broadband. It is suggested that regulators consider introducing regulated co-investment agreements complementing current regulation or in some cases even substituting for it, in addition to considering geographically segmented access prices.
    Keywords: next generation access,co-investment models,cooperative investment,investment sharing,investment cooperation,geographic regulation
    Date: 2014
  2. By: Klein, Gordon J.; Wendel, Julia
    Abstract: For more than a decade the unbundling of telecommunications networks has been used as a regulatory means to stifle competition. However, despite its assumed positive effects on market entry and competition intensity, the negative effects on network investment incentives are widely shown in the theoretical literature. Therefore broadband penetration might also be affected negatively. In our paper we concentrate on the impact of local loop unbundling and Bitstream access on broadband penetration. Using a panel of European countries for a time period of 17 years, we find that the effect of unbundling on penetration is positive when an intermediate level of broadband penetration has been achieved in a country. However, this impact turns negative if the initial level of broadband penetration is rather low or high. We argue that this confirms possible negative effects on investment incentives, but may successfully lower prices to foster demand. These are two findings which should be carefully considered by policy makers when deciding on unbundling policies.
    Keywords: Broadband Internet Penetration,Local Loop Unbundling,Bitstream Access,Policy Evaluation,Panel Data Analysis
    Date: 2014
  3. By: Wagner, Ulrich; Petrick, Sebastian
    Abstract: We estimate the causal impact of the EU Emissions Trading Scheme on manufacturing firms using comprehensive panel data from the German production census. Semiparametric matching estimators yield robust evidence that the policy caused treated firms to abate one fifth of their CO2 emissions between 2007 and 2010, relative to non-treated fi rms. This reduction was achieved predominantly by improving energy efficiency and by curbing the consumption of natural gas and petroleum products, but not electricity use. We find no evidence that emissions trading lowered employment, turnover or exports of treated fi rms.
    JEL: D22 Q54 Q52
    Date: 2014
  4. By: Ulrich Kaiser (Department of Business Administration, University of Zurich; Copenhagen Business School; Centre for European Economic Research; and Institute for the Study of Labor (IZA)); Susan J. Méndez (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)
    Abstract: We study the effects of a change in the way patient reimbursements are calculated on the prices of pharmaceuticals using quasi-experimental data for Denmark which switched from external (where reimbursements are based on prices of similar products in foreign countries) to internal reference pricing (where they are based on the cheapest domestic substitute). We analyze three therapeutic classes with different treatment durations and show that the reform led to substantial price decreases for our lifelong treatment and to less substantial price reductions for our medium duration treatment while we do not find significant effects on our acute treatment. Moreover, the reform did only affect generics and did not impact original products or parallel imports.
    Keywords: Pharmaceutical markets, regulation, reference pricing, treatment duration
    JEL: I18 C23
    Date: 2015–01
  5. By: Balmer, Roberto E.
    Abstract: Fixed telephony has long been a fundamentally important market for European telecommunications operators. The liberalisation and the introduction of regulation in the end of the 1990s, however, allowed new entrants to compete with incumbents at the retail level. A rapid price decline and a decline in revenues followed. Increased retail competition eventually led a number of national regulators to deregulate this market. In 2013, however, many European countries (including Switzerland) continued to have partially binding retail price regulation in this market. More than a decade after liberalisation and the introduction of wholesale and retail price regulation, sufficient data is available to empirically measure the success of regulation and assess its continued necessity. This paper develops a market model based on a generalised version of the traditional dominant firm - competitive fringe model allowing for the incumbent a more competitive conduct than that of a dominant firm. A system of simultaneous equations is developed and direct estimation of the incumbent's residual demand function is performed by instrumenting the market price by incumbent-specific cost shifting variables as well as other variables. Unlike earlier papers that assess market power in this market, this paper also adjusts the market model to ensure a sufficient level of cointegration and avoid spurious regression results. This necessitates the introduction of intertemporal effects. While the incumbent's conduct cannot be directly estimated using this framework, the concrete estimates show that its residual demand is inelastic (long run price elasticity of residual demand of -0.12). Such a level of elasticity is shown to be only compatible with a profit maximising incumbent in the case of largely competitive conduct (conduct parameter below 0.12 and therefore close to zero). It is consequently found that the Swiss incumbent acted rather competitively in the fixed telephony retail market in the period under review (2004-2012) and that the (partial) retail price caps in place can no longer be justified on the basis of a lack of competition.
    Keywords: residual demand estimation,competition,conduct,time series,dynamic residual demand estimation,fixed voice,fixed telephony,retail market,telecommunications
    Date: 2014
  6. By: Aygul Ozbafli (JDINT’L, Department of Economics, Queen’s University, Canada); Glenn P. Jenkins (Queen’s University, Canada and Eastern Mediterranean University, North Cyprus)
    Abstract: This research examines households’ willingness to pay (WTP) for an improved electricity service. Households’ WTP is estimated using the contingent valuation (CV) method on data from 350 in-person interviews in North Cyprus. In order to avoid the cost of outages, households are willing to incur a 13.5% increase in their monthly electricity bill. A cost–benefit analysis (CBA) indicates that the annualized economic benefits of improved reliability of the electricity service would be approximately USD 37.8 million for the residential sector alone. This figure is more than enough to finance the investments needed to completely eradicate any electricity outages. In addition, the fuel savings from substituting the generation of the new plants for the old plants would yield about USD 44.6 million per year in fuel savings. Hence, a change from the current low-reliability policy to one of providing a high-quality service would yield an economic net present value to the residents of North Cyprus of over 2.5 times the investment costs or USD 226 million within five years.
    Keywords: Willingness to pay; contingent valuation; electricity; outages; reliability; cost-benefit analysis
    JEL: D12 D61 L94 L98 Q41
    Date: 2015–02
  7. By: Isabelle CADORET (CREM-CNRS and Condorcet Center, University of Rennes 1, France); Fabio PADOVANO (CREM-CNRS and Condorcet Center, University of Rennes 1, France, Department of Political Sciences, University Roma Tre, Italy)
    Abstract: This paper empirically analyzes how political factors affect the deployment of renewable energy (RE) sources and compares it to other economic, energy and environmental drivers that have received greater attention in the literature so far. The sample encompasses the EU countries bound to attain the target of 20% share of gross final energy consumption by 2020. The panel data analysis shows that lobbying by the agricultural industry negatively affect RE deployment, whereas standard measures of government quality show a positive effect; furthermore left-wing parties promote the deployment of RE more than right wing ones, but this effect is reduced when the governing coalition is highly concentrated. Among the control variables, economic growth shows a positive impact on RE deployment.
    Keywords: renewable energy sources, energy policy, quality of government, lobbying, political ideology
    JEL: Q28 H54 H87 D72 D73 D78
    Date: 2015–01
  8. By: Bourna, Maria; Mitomo, Hitoshi
    Abstract: Improved internet connectivity has been a consistent aim of Japanese telecommunications policy in the past decades, however, despite the high availability of high speed and ultra-high speed broadband services, actual use has yet to match network capacity. This study hopes to explore this paradox by looking at the factors that affect demand for broadband services. To achieve this, the relationship between overall broadband adoption and two basic demand factors, namely price of internet services and presence of a competitor in the form of wireless broadband, was examined over a 12-year period. The findings suggest that the lag in adoption can be attributed to both a higher demand for wireless connectivity and high broadband contract prices, while network effects may play a positive role in diffusion. Given that Japanese broadband policy has tended to focus more on the role of price as a mechanism for improving penetration, this study ultimately contributes to the discussion of policy efficiency by providing some empirical basis for the consideration of alternative demand-side incentives.
    Keywords: broadband adoption,Japan,mobile internet
    Date: 2014
  9. By: Ujjayant Chakravorty; Martino Pelli; Beyza Ural Marchand
    Abstract: This paper estimates the returns to household income due to improved access to electricity in rural India. We examine the effect of connecting a household to the grid and the quality of electricity, defined as hours of daily supply. The analysis is based on two rounds of a representative panel of more than 10,000 households. We use the district-level density of transmission cables as instrument for the electrification status of the household. We find that a grid connection increases non-agricultural incomes of rural households by about 9 percent during the study period (1994-2005). However, a grid connection and a higher quality of electricity (in terms of fewer outages and more hours per day) increases non-agricultural incomes by about 28.6 percent in the same period.
    Keywords: Electricity Supply, Quality, India, Energy and Development, Infrastructure
    JEL: O12 O18 Q48
  10. By: Macieira, João; Pereira, Pedro; Vareda, João
    Abstract: We analyze …firms incentives to bundle and tie in the telecommunications industry. As a fi…rst step, we develop a discrete-choice demand model where fi…rms sell products that may combine several services in bundles, and consumers choose assortments of different types of products available from various vendors. Our approach extends standard discrete-choice demand models of differentiated product to allow for both flexible substitution patterns and to map demand for each choice alternative onto the demand for each service or bundle that a fi…rm may sell. We exploit these properties to examine bundling behavior when fi…rms choose: (i) prices, and (ii) which products to sell. Using consumer-level data and survey data from the Portuguese telecommunications industry, we estimate our demand model and identify fi…rm incentives to bundle and tie in this industry. We use the model to perform several policy related conterfactuals and evaluate their impact on prices and product provision.
    Keywords: Bundles,Discrete-Choice Model,Equilibrium Simulation,Differentiated Product,Consumer Level Data
    JEL: D43 K21 L44 L96
    Date: 2014
  11. By: Orlova, Ekaterina; Hubert, Franz
    Abstract: We study the impact of the liberalization of EU natural gas markets on the balance of power between `local champions', customers, and outside producers. We distinguish between two steps of the reform: 1. opening access to transit pipes and 2. opening access to distribution systems, hence customers. Using the Shapley value as a power index, we find a modest and rather heterogeneous impact from the first step. The impact of the second step is much larger and yields a clear pattern: all local champions lose, while all customers and all outside players gain. As one third of the losses of champions within EU leaks to players abroad, current reforms might enhance the dominance of already powerful outside producers. This effect, however, completely vanishes, when network power is assessed with the nucleolus.
    JEL: L51 L95 C71
    Date: 2014
  12. By: ITO Koichiro; Mar REGUANT
    Abstract: We develop a theoretical framework to characterize strategic behavior in sequential markets under imperfect competition and limited arbitrage. Our theory predicts that these two elements can generate a systematic price premium. We test the model predictions using microdata from the Iberian electricity market. We show that the observed price differences and firm behavior are consistent with the model. Finally, we quantify the welfare effects of arbitrage using a structural model. In our setting, we show that full arbitrage is not necessarily welfare-enhancing in the presence of market power. It reduces consumer costs but decreases productive efficiency.
    Date: 2015–02

This nep-reg issue is ©2015 by Natalia Fabra. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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