nep-reg New Economics Papers
on Regulation
Issue of 2016‒02‒29
fourteen papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Content providers and co-investment in broadband networks By Anna D'Annunzio; Pierfrancesco Reverberi
  2. Reference pricing with endogenous generic entry By Kurt R. Brekke; Chiara Canta; Odd Rune Straume
  3. How do the appliance energy standards work in China? Evidence from room air conditioners By Hao Yu; Bao-Jun Tang; Xiao-Chen Yuan; Shouyang Wang; Yi-Ming Wei
  4. Unobservable investments, limited commitment, and the curse of firm relocation By Martin Pollrich; Robert Schmidt
  5. Competition in Telecommunications and Internet Services: Problems with Asymmetric Regulations By Paul J.J. Welfens
  6. To Regulate or to Deregulate? The Role of Downstream Competition in Upstream Monopoly Vertically Linked Markets By Polemis, Michael; Eleftheriou, Konstantinos
  7. European broadband policy – regulation vs. Facilitation By Falch, Morten; Henten, Anders
  8. Double Moral Hazard and the Energy Efficiency Gap By Louis-Gaëtan Giraudet; Sébastien Houde
  9. Competition and market strategies in the Swiss fixed telephony market By Balmer, Roberto E.
  10. The price of broadband quality: tracking the changing valuation of service characteristics By Coynea, Bryan; Lyonsa, Sean
  11. Increasing the Value of Telecom Operators with a Single EU Market By Serrano Calle, Silvia
  12. Ultra-Broadband For All In Europe: Can Access Regulation Hinder Innovation And Welfare Maximisation? By Amendola, Giovanni Battista
  13. How to fill the digital gap? The (limited) role of regulation By Briglauer, Wolfgang; Cambini, Carlo; Melani, Sauro
  14. Telecom operators and the aftermath of the European Commission agenda for the termination of roaming charges within the EU By Ntarzanou, Vasiliki; Portela, Miguel

  1. By: Anna D'Annunzio (Telenor Research, Snar¿yveien 30, 1360 Fornebu, Norway); Pierfrancesco Reverberi (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza")
    Abstract: In many countries, Next Generation Access networks (NGA) deployment and penetration rate proceed at a slower pace than expected. We argue that an ex ante contractual arrangement among access Internet Service Providers (ISPs) and Content Providers (CPs), which builds on the complementarity between infrastructure and content, can promote the roll out of NGA. Different from co-investment of ISPs, and from incentive policies based on access regulation, one such contract brings down the investment cost for the telecom industry, promotes end users' demand for improved connectivity, and internalizes investment externalities. We then study how the regulatory regime of the Internet affects firms' investment incentives. Using a simple model, we show that a departure from network neutrality, which allows the access ISP to negotiate with the CP a fee for priority delivery of content, has ambiguous effects on infrastructure investment. The ISP's and the CP's incentives to (co)-invest in NGA depend on the cost of investment and the CP's bargaining power ex post (when investment is sunk).
    Keywords: Next Generation Access networks ; Investment under uncertainty ; Ex-ante and ex-post contracts ; Network neutrality ; Co-investment
    Date: 2015
  2. By: Kurt R. Brekke (Department of Economics, Norwegian School of Economics); Chiara Canta (Department of Economics, Norwegian School of Economics); Odd Rune Straume (Universidade do Minho - NIPE)
    Abstract: In this paper we study the effect of reference pricing on pharmaceutical prices and ex-penditures when generic entry is endogenously determined. We develop a Salop-type model where a brand-name producer competes with generic producers in terms of prices. In the market there are two types of consumers: (i) brand biased consumers who choose between brand-name and generic drugs, and (ii) brand neutral consumers who choose between the different generic drugs. We find that, for a given number of firms, reference pricing leads to lower prices of all products and higher brand-name market shares compared with a reimbursement scheme based on simple coinsurance. Thus, in a free entry equilibrium, the number of generics is lower under reference pricing than under coinsurance, implying that the net effects of reference pricing on prices and expenditures are ambiguous. Allowing for price cap regulation, we show that the negative effect on generic entry can be reversed, and that reference pricing is more likely to result in cost savings than under free pricing. Our results shed light on the mixed empirical evidence on the effects of reference pricing on generic entry.
    Keywords: Pharmaceuticals; Reimbursement schemes; Generic entry
    JEL: I11 I18 L13 L51
    Date: 2015
  3. By: Hao Yu; Bao-Jun Tang; Xiao-Chen Yuan; Shouyang Wang; Yi-Ming Wei (Center for Energy and Environmental Policy Research (CEEP), Beijing Institute of Technology)
    Abstract: China has been the world's largest producer and consumer of air conditioners, and more and more RACs would be owned by China's households along with the rapid economic development. Air Conditioner is also considered as one of the largest potential contributors to energy reduction among home appliances because of the huge energy consumption. Therefore, the national energy efficiency standards were issued to promote the use and production of high-efficient RACs. According to China's energy efficiency standards, this paper investigated the electricity savings and CO2 emission reductions from RACs over the period of 2005-2025. The results indicate that the rural RAC market which develops more slowly than the urban one still has great potential, and government has to revise subsidy policies to make the standards more effective, especially for rural areas. In 2025, the total electricity consumption of RACs is projected to be 598-674TWh, while the amount without energy efficiency standards is 753TWh. From 2005 to 2025, the energy efficiency standards for RACs can save 1430-2540TWh electricity and reduce 908.3-1610.1 Mt CO2 emissions in different scenarios. Finally, we suggest that the standards should be revised every 4 or 5 years with higher revision pace of 8% to 10%.
    Keywords: Room air conditioner, Electricity saving, Energy efficiency standard, CO2 emission reduction
    JEL: Q48 Q50
    Date: 2014–08–27
  4. By: Martin Pollrich (Humboldt-Universitaet zu Berlin, Department of Economics); Robert Schmidt (Humboldt-Universitaet zu Berlin, Department of Economics)
    Abstract: Changes in market conditions or policies can induce firms to relocate. Countries may intervene by subsidizing domestic rms. We analyze a dynamic game where a regulator oers contracts to avert relocation of a rm in each of two periods. The firm can undertake an investment that is unobservable to the regulator, while contracts are contingent on an observable productive activity. Under limited commitment it is impossible to implement outcomes with positive transfers in the second period. To circumvent this problem, the regulator can tighten the regulation of the firm in the first period to induce a larger investment (lock-in effect).
    Keywords: moral hazard, contract theory, limited commitment, firrm mobility, abatement capital
    JEL: D82 D86 L51
    Date: 2014–09–25
  5. By: Paul J.J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))
    Abstract: With the digital convergence of internet services markets and telecommunications markets, the issue of a common, consistent regulation has become more important. While Google or Facebook can exploit knowledge about the content of “data mails” or SMS, data protection rules for telecommunication operators are different – they cannot use info about “structural content” and are thus unable to generate high revenues from advertising that is based on knowledge about structural content. Internet service providers thus can cross-subsidize digital communication services and thereby gain market shares - based on cross-subsidization - in traditional telecommunication markets. Thus there is a fundamental inconsistency of regulations for internet service providers and telecommunication operators which should be remedied by new global rules for the emerging global communications market. The EU and the US, as well as other countries, plus the ITU should launch a joint initiative in order to create a global level playing field.
    Keywords: Internet services, Telecommunication, Regulation, Digital global markets
    JEL: L86 L96 L98
    Date: 2014–12
  6. By: Polemis, Michael; Eleftheriou, Konstantinos
    Abstract: This paper attempts to cast light to the relationship between Cournot-Bertrand controversy and monopoly regulation. To this purpose, we use a simple model of a vertically linked market, where an upstream regulated natural monopoly is trading via two-part tariff contracts with a downstream duopoly. Combining our results to those of the existing literature on deregulated markets, we argue that when the downstream competition is in prices, efficiency dictates regulating the monopoly with a marginal cost based pricing scheme. However, this type of regulation leads to significant welfare loss, when the downstream market is characterized by Cournot competition.
    Keywords: Bertrand; Cournot; Marginal cost pricing; Regulation; Vertical relations
    JEL: L43 L51
    Date: 2015–03–26
  7. By: Falch, Morten; Henten, Anders
    Date: 2015
  8. By: Louis-Gaëtan Giraudet (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CNRS - Centre National de la Recherche Scientifique - CIRAD - Centre de coopération internationale en recherche agronomique pour le développement - EHESS - École des hautes études en sciences sociales - École des Ponts ParisTech (ENPC) - AgroParisTech - AgroParisTech); Sébastien Houde (University of Maryland)
    Abstract: We investigate how moral hazard problems can cause sub-optimal investment in energy efficiency, a phenomenon known as the energy efficiency gap. We focus on contexts where both the seller and the buyer of an energy saving technology can take hidden actions. For instance, a home retrofit contractor may cut on the quality of installation to save costs, while the homeowner may increase her use of energy service when provided with higher energy efficiency. As a result, neither energy efficiency quality nor energy use are fully contractible. We formalize the double moral hazard problem and discuss how it can help rationalize the energy efficiency gap. We then compare two policy instruments: minimum quality standards and energy-savings insurance. Their relative efficiency depends on the balance between the monitoring costs associated with the former and the deadweight loss of the consumer's action induced by the latter. Calibrating the model to the U.S. retrofit industry, we find that at current market conditions, standards tend to outperform insurance. We also find that the welfare gains from undoing the double moral hazard are substantially larger than those from internalizing carbon dioxide externalities associated with underlying energy use.
    Keywords: Energy efficiency gap, moral hazard, energy-savings insurance, minimum quality standard, credence good, rebound effect.
    Date: 2015–04–30
  9. 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: 2015
  10. By: Coynea, Bryan; Lyonsa, Sean
    Abstract: This paper investigates how retail broadband prices, choice and quality are changing over time. Using a dataset containing daily observations of plans offered in Ireland from 2007 to 2013, this paper applies hedonic modelling techniques to observe the changing pricing of service characteristics. We augment our results by restricting the analysis to large operators and also by weighting by operator market share for a subset of our data (2010-2013). Although we find that average nominal prices remain static throughout our sample period, quality of service has risen dramatically over time, particularly with respect to download speed. Some characteristics of broadband plans exhibit broadly stable valuations over time, but the elasticity of price with respect to advertised download speed and the premium on bundled plans declined during the sample period. In addition, the retail price premium enjoyed by the incumbent operator fell significantly since 2007.
    Keywords: broadband services,market analysis,Ireland
    JEL: L11 L96
    Date: 2015
  11. By: Serrano Calle, Silvia
    Abstract: In this paper we analyze the risks the European Telecom market is experiencing. Many economic disincentives to investing in infrastructure are related to the fact that market value of the companies can be lower than expected. Next Generation Networks (NGN) deployment require great amounts of capital but investing in new networks is not attractive for all players. The internet ecosystem is a much more complex scenario than the traditional telecommunications market and has changed the economic models. There are diverse regulatory approaches within the European Union (EU) nowadays. The Single European Market could be the solution to increase competitiveness and to rise the value of European Telecom Operators.
    Keywords: Telecom operators,Next Generation Networks,EU Single Market,Regulatory risk
    JEL: G38 L25 L96
    Date: 2015
  12. By: Amendola, Giovanni Battista
    Abstract: Most of the European countries risk not reaching the 2020 Digital Agenda for Europe (DAE) targets. In order to achieve these targets, private investments in ultra-broadband networks should be vigorously promoted by access regulation whilst the deployment of ultra-broadband networks in unprofitable areas should be subsidized by means of appropriate public funding. Fiber to the Cabinet (FTTC) is considered a key technology in order to reach the 2020 DAE targets. This deployment model is widely adopted in a number of countries including, among others, Germany, the UK and Italy. The paper addresses FTTC regulation both at national and local level, that is in geographic areas subsidized by State aids. First, it emerges a clear trade-off at national level between the goal of infrastructure-based competition at the cabinet level and the achievement of the 2020 DAE targets. Inappropriate access regulation may indeed jeopardize the 2020 DAE targets by decreasing private investors’ incentives to roll out FTTC networks, as well as to deploy new technologies such as Vectoring. Access regulation may thus, rather paradoxically, increase the amount of State aid funding which is required in a given country to meet the 2020 DAE targets. Second, excessive access obligations in geographies subsidized by State aids can also substantially increase State aid funding and, thus, undermine the capability of a given country to reach the 2020 DAE targets.
    Date: 2015
  13. By: Briglauer, Wolfgang; Cambini, Carlo; Melani, Sauro
    Abstract: This paper provides evidence on the migration from an 'old' technology to a 'new' technology, taking into account the impact that regulatory interventions on the old one might have on the incentives to invest and adopt the new one. This analysis has been applied to a sample of EU27 countries using panel data from 2004 to 2014 on the adoption, coverage and take-up rate of ultra-fast broadband infrastructures, whose development is one of the flagship initiatives of the Europe 2020 programmes. Results show that a 1% increase in the regulated price to access the old technology increases the adoption and the investment on the new broadband technology by ~0.45% and ~0.47%. These effects are not homogeneous across countries and are weakened in Eastern European countries, where the existing old broadband infrastructures are less developed than in the rest of Europe. It has also been shown that the access price to old networks negatively affects the take-up rate of the new technology-based services, thus calling for the need of more specific and complementary demand side policy incentives to enhance service adoption.
    Keywords: next generation broadband networks,regulation,investment,adoption,take-up,Digital Agenda Europe
    JEL: H5 L38 L43 L52
    Date: 2016
  14. By: Ntarzanou, Vasiliki; Portela, Miguel
    Abstract: The telecommunication sector within the European Union is facing fundamental changes, both because of global developments such as the introduction of OTT services and because of the hurdles along the way towards the transition to a European Digital Single Market. In this unified market many European operators possibly won’t survive in their current form but it is expected that the resulting ones be more resilient and strong. This leads to extended interactions between technology, market and regulation and the possible outcome scenarios, deriving from these interactions, shape to a great extent the developments in the European Telecommunications market, bringing changes in the strategies of OTT and Telecom operators and leading the evolution of their surrounding ecosystem. In a unified market in the telecom sector, mandated by EU regulation and developments in the field of communications, there is potential for fundamental changes that will ensure that the market evolves and adjusts successfully to this new frame and that the consumers’ needs are fully met. On the one hand, it is important that the EU regulatory frameworks are clear and well thought, but in return Telecoms need to make their own strategic adjustments to survive within those frameworks. This paper explores the possible effects of the termination of international roaming charges on Telecom operators and sets the ground based on which strategic changes can be made in order to compensate for the loss of this revenue stream. Inside the European Union several voices have been raised about the economic gains of a Single Market of telecommunications. The scale of these gains are difficult to predict but the transition to a more unified telecommunications market is a vision that the EU attempts to complete gradually, demanding that Telecom operators eventually comply and adjust. There is a big sea of possibilities for corporate strategies that telecom operators can follow to grow in revenue and profitability and some companies are already showing signs of what they plan to do. Also there are already trends observed in terms of capital for concentration and consolidation in this sector which leads to a basic conclusion that companies are trying to get ready even in adverse financial times. This paper aims at identifying the players in the roaming market and making clearer which strategic trends are being popularized and have more chances of resulting in a successful strategy for telecom operators.
    Date: 2015

This nep-reg issue is ©2016 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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