nep-reg New Economics Papers
on Regulation
Issue of 2021‒12‒20
25 papers chosen by
Christopher Decker
Oxford University

  1. The Tension Between Market Shares and Profit Under Platform Competition By Paul Belleflamme; Martin Peitz; Eric Toulemonde
  2. Electricity Price Distributions in Future Renewables-Dominant Power Grids and Policy Implications By Dharik S. Mallapragada; Cristian Junge; Cathy Xun Wang; Johannes Pfeifenberger; Paul L. Joskow; Richard Schmalensee
  3. Empirical Perspectives on Auctions By Ali Hortaçsu; Isabelle Perrigne
  4. Ultra-Fast Broadband Access and Productivity :Evidence from Italian Firms By Carlo Cambini; Elena Grinza; Lorien Sabatino
  5. Strategic data sales to competing firms By DELBONO Flavio; REGGIANI Carlo; SANDRINI Luca
  6. Ex ante and ex post equilibrium supply curves By Flavio M. Menezes; John Quiggin
  7. Optimal bidding strategies for digital advertising By M\'ed\'eric Motte; Huy\^en Pham
  8. Bid Coordination in Sponsored Search Auctions: Detection Methodology and Empirical Analysis By Decarolis, Francesco; Goldmanis, Maris; Penta, Antonio; Shakhgildyan, Ksenia
  9. Maximizing revenue in the presence of intermediaries By Gagan Aggarwal; Kshipra Bhawalkar; Guru Guruganesh; Andres Perlroth
  10. The draft digital markets act: a legal and institutional analysis By Ibáñez Colomo, Pablo
  11. Privacy Paradox – Economic Uncertainty Theory and Legal Consequences By Sarah Geschonke; Thomas Wein
  12. Complementing carbon prices with Carbon Contracts for Difference in the presence of risk - When is it beneficial and when not? By Jeddi, Samir; Lencz, Dominic; Wildgrube, Theresa
  13. A time for action on climate change and a time for change in economics By Stern, Nicholas
  14. TSO-DSOs Stable Cost Allocation for the Joint Procurement of Flexibility: A Cooperative Game Approach By Anibal Sanjab; H\'el\`ene Le Cadre; Yuting Mou
  15. Framing energy choices in consumer decision-making Evidence from a random experiment in Sweden By Gustafsson, Peter; Nilsson, Peter; David, Lucinda; Marañon, Antonia
  16. The determinants of electricity constraints by firms in developing countries By Elizabeth Asiedu; Théophile Azomahou; Neepa Gaekwad; Mahamady Ouedraogo
  17. Functional Model of Residential Consumption Elasticity under Dynamic Tariffs By Kamalanathan Ganesan; Jo\~ao Tom\'e Saraiva; Ricardo J. Bessa
  18. Competition and regulation in the Finnish ATM industry By Markkula, Tuomas; Takalo, Tuomas
  19. Politically Robust Financial Regulation By Mr. Itai Agur
  20. Stay Competitive in the Digital Age: The Future of Banks By Miss Estelle X Liu
  21. Capitalism needs a new social contract By Shafik, Minouche
  22. Impact of Cross-Border Competition on the German Retail Gasoline Market – German-Polish Border By Mats P. Kahl
  23. Why abandoning the paradise? Stations incentives to reduce gasoline prices at first By Thomas Wein
  24. Market definition of the german retail gasoline industry on highways and those in the immediate vicinity By Christoph Kleineberg
  25. Cartel behavior and efficient sanctioning by criminal sentences By Thomas Wein

  1. By: Paul Belleflamme; Martin Peitz; Eric Toulemonde
    Abstract: We introduce asymmetries across platforms in the linear model of competing two-sided platforms with singlehoming on both sides and fully characterize the price equilibrium. We identify market environments in which one platform has a larger market share on both sides while obtaining a lower profit than the other platform. This platform enjoys a competitive advantage on one or both sides. Our finding raises further doubts on using market shares as a measure of market power in platform markets.
    Keywords: Two-sided platforms, market share, market power, oligopoly, network effects, antitrust
    JEL: D43 L13 L86
    Date: 2020–08
  2. By: Dharik S. Mallapragada; Cristian Junge; Cathy Xun Wang; Johannes Pfeifenberger; Paul L. Joskow; Richard Schmalensee
    Abstract: Future electricity systems with tight constraints on carbon emissions will rely much more on wind and solar generation, with zero marginal cost, than today. We use capacity expansion modelling of Texas in 2050 to illustrate wholesale price distributions in future energy-only, carbon-constrained grids without price caps under a range of technology/system assumptions. Tightening carbon emissions constraints dramatically increases the frequency of very low prices. The frequency of high prices also increases, and all resources earn the bulk of their energy market revenues in relatively few hours. The presence of demand response, long-duration energy storage, dispatchable low-carbon generation, or a robust market for hydrogen for non-electricity use (and for energy storage) weakens but does not undo these results. Financial instruments to hedge price volatility will consequently be more costly and it is likely that we will need to redesign capacity remuneration mechanisms to provide adequate incentives for optimal investment in VRE generation and, particularly, storage. In order to encourage economy-wide electrification, the marginal retail price of electricity should be low whenever the wholesale price is low. With automated control of demand via demand response contracts, the risks of price volatility faced by retail customers can be mitigated without sacrificing efficiency. To encourage economy-wide electrification, the marginal retail price of electricity should be low when the wholesale spot price is low. We discuss ways of reducing consumers’ risk in this world while providing adequate investment incentives.
    JEL: L11 L51 L94 Q41 Q42 Q49
    Date: 2021–11
  3. By: Ali Hortaçsu; Isabelle Perrigne
    Abstract: The empirical analysis of auction data has become a thriving field of research over the past thirty years. Relying on sophisticated models and advanced econometric methods, it addresses a wide range of policy questions for both public and private institutions. This chapter offers a guide to the literature by stressing how data features and policy questions have shaped research in the field. The chapter is organized by types of goods for sale and covers auctions of timber, construction and services procurement, oil and gas leases, online auctions, internet advertising, electricity, financial securities, spectrum, as well as used goods. It discusses the idiosyncrasies of each applied setting and the respective empirical findings.
    JEL: G2 L11 L4 L71 L73 L74 L86 L94 L96
    Date: 2021–11
  4. By: Carlo Cambini; Elena Grinza; Lorien Sabatino
    Abstract: We study the impact of ultra-fast broadband (UFB) infrastructures on the total factor productivity (TFP) and labor productivity of firms. We use unique balanced panel data for the 2013-2019 period on incorporated firms in Italy. Using the geographical location of the firms, we match firm data with municipality-level information on the diffusion of UFB, which started in 2015 in Italy. We derive consistent firm-level TFP estimates by adopting a version of the Ackerberg et al.’s (2015) method, which also accounts for firm fixed effects. We then assess the impact of UFB on productivity and deal with the endogeneity of UFB by exploiting the physical distance between each municipality and the closest backbone node. Our results show an overall positive impact of UFB on productivity. Services companies benefit the most from advanced broadband technologies, as do firms located in the North-West and South of Italy. We further decompose the impact of full-fiber networks (FTTH) from mixed copper-fiber connections (FTTC) and find that FTTH networks significantly contribute to enhancing firm productivity. Finally, by exploiting Labor Force Survey data, we provide suggestive evidence that productivity increases from UFB might be related to structural changes at the workforce level.
    Keywords: Ultra-fast broadband (UFB); fiber-based networks; fiber-to-the-home (FTTH)
    JEL: L96 D24 D22
    Date: 2021–12–03
  5. By: DELBONO Flavio; REGGIANI Carlo (European Commission – JRC); SANDRINI Luca
    Abstract: The unprecedented access of firms to consumer level data facilitates more precisely targeted individual pricing. We study the incentives of a data broker to sell data about a segment of the market to three competing firms. The segment only includes a share of the consumers in the market around one of the firms. Data are never sold exclusively. Despite the data are particularly tailored to the potential clientele of one of the firms, we show that the data broker has incentives to sell the list to its competitors. Such market outcome is not socially optimal, and a regulator that aims to maximise consumers and social welfare should consider mandating data sharing.
    Keywords: data markets, personalised pricing, price discrimination, oligopoly, selling mechanisms
    Date: 2021–12
  6. By: Flavio M. Menezes (School of Economics, University of Queensland, Brisbane, Australia); John Quiggin (School of Economics, University of Queensland, Brisbane, Australia)
    Abstract: A number of writers have modelled imperfect markets using games in which the strategies are supply functions, that is, mappings from prices to quantities produced. Two representations of this problem have beenanalyzed, which may be referred to as ex ante and ex post, depending on whether strategies are chosen before or after demand shocks are observed. In this paper, we examine the relationship between equilibria in supply curves derived using the ex ante and ex post approaches. We derive conditions under which a linear ex ante solution coincides with the ex post solution. These conditions generalize the case of linear demand and quadratic cost, analyzed by Klemperer and Meyer. We demonstrate that all ex ante solutions derived in this way are unique.
    Date: 2021–11–16
  7. By: M\'ed\'eric Motte (LPSM); Huy\^en Pham (LPSM)
    Abstract: With the emergence of new online channels and information technology, digital advertising tends to substitute more and more to traditional advertising by offering the opportunity to companies to target the consumers/users that are really interested by their products or services. We introduce a novel framework for the study of optimal bidding strategies associated to different types of advertising, namely, commercial advertising for triggering purchases or subscriptions, and social marketing for alerting population about unhealthy behaviours (anti-drug, vaccination, road-safety campaigns). Our continuoustime models are based on a common framework encoding users online behaviours via their web-browsing at random times, and the targeted advertising auction mechanism widely used on Internet, the objective being to efficiently diffuse advertising information by means of digital channels. Our main results are to provide semi-explicit formulas for the optimal value and bidding policy for each of these problems. We show some sensitivity properties of the solution with respect to model parameters, and analyse how the different sources of digital information accessible to users including the social interactions affect the optimal bid for advertising auctions. We also study how to efficiently combine targeted advertising and non-targeted advertising mechanisms. Finally, some classes of examples with fully explicit formulas are derived.
    Date: 2021–11
  8. By: Decarolis, Francesco; Goldmanis, Maris; Penta, Antonio; Shakhgildyan, Ksenia
    Abstract: Bid delegation to specialized intermediaries is common in the auction systems used to sell internet advertising. When the same intermediary concentrates the demand for ad space from competing advertisers, its incentive to coordinate client bids might alter the functioning of the auctions. This study develops a methodology to detect bid coordination, and presents a strategy to estimate a bound on the search engine revenue losses imposed by coordination relative to a counterfactual benchmark of competitive bidding. Using proprietary data from auctions held on a major search engine, coordination is detected in 55 percent of the cases of delegated bidding that we observed, and the associated upper bound on the search engine’s revenue loss ranges between 5.3 and 10.4 percent.
    Keywords: Online Advertising; Sponsored Search Auctions; Delegation; Common Agency
    JEL: C72 D44 L81
    Date: 2021–12–03
  9. By: Gagan Aggarwal; Kshipra Bhawalkar; Guru Guruganesh; Andres Perlroth
    Abstract: We study the mechanism design problem of selling $k$ items to unit-demand buyers with private valuations for the items. A buyer either participates directly in the auction or is represented by an intermediary, who represents a subset of buyers. Our goal is to design robust mechanisms that are independent of the demand structure (i.e. how the buyers are partitioned across intermediaries), and perform well under a wide variety of possible contracts between intermediaries and buyers. We first study the case of $k$ identical items where each buyer draws its private valuation for an item i.i.d. from a known $\lambda$-regular distribution. We construct a robust mechanism that, independent of the demand structure and under certain conditions on the contracts between intermediaries and buyers, obtains a constant factor of the revenue that the mechanism designer could obtain had she known the buyers' valuations. In other words, our mechanism's expected revenue achieves a constant factor of the optimal welfare, regardless of the demand structure. Our mechanism is a simple posted-price mechanism that sets a take-it-or-leave-it per-item price that depends on $k$ and the total number of buyers, but does not depend on the demand structure or the downstream contracts. Next we generalize our result to the case when the items are not identical. We assume that the item valuations are separable. For this case, we design a mechanism that obtains at least a constant fraction of the optimal welfare, by using a menu of posted prices. This mechanism is also independent of the demand structure, but makes a relatively stronger assumption on the contracts between intermediaries and buyers, namely that each intermediary prefers outcomes with a higher sum of utilities of the subset of buyers represented by it.
    Date: 2021–11
  10. By: Ibáñez Colomo, Pablo
    Abstract: The proposal for a Digital Markets Act signals a new approach to the regulation of Big Tech in the EU and beyond.1 The legislative machine has been set in motion following a change in the attitude of authorities and stakeholders vis-à-vis the growing and transformative role of online platforms in the economy. It has been argued—including in a number of reports for public authorities2—that competition law, in its current incarnation, would be unable to address the challenges raised by Big Tech. According to this view, it would not be sufficiently effective to respond to the actual or potential effects resulting from the power wielded by these firms. Several alleged...
    Keywords: OUP deal
    JEL: L81
    Date: 2021–09–01
  11. By: Sarah Geschonke; Thomas Wein (Leuphana University of Lüneburg)
    Abstract: Internet users generously disclose personal information to consume supposedly “free” digital services despite severe privacy concerns—a phenomenon termed privacy paradox. Humanities have thoroughly studied this discrepancy in attitude and behavior, yet have not developed a conclusive explanation for its occurrence, let alone a means to counter it. Both the quantity and the quality of data privacy laws, as well as the increasing number of court rulings dealing with digital business models, show the urgent need to better understand the cause of the privacy paradox and to mitigate it. This paper analyzes the contradictory phenomenon from an economic point of view. By applying the two-state of the world-model, the authors demonstrate that uncertainty about the extent and the likelihood of a data breach are explanatory factors for the privacy paradox. Taking the European General Data Protection Regulation as an exemplary showcase, the authors further examine the role of privacy laws to offset Internet users’ inconsistent privacy behavior. In theory, such a “rights and remedies” scheme is intended to counter the uncertainty factors provoking the privacy paradox; however, in practice, this intention is only partially served.
    Keywords: Data protection, Privacy paradox, Legal remedies
    JEL: K24 L15 L86
    Date: 2020–08
  12. By: Jeddi, Samir (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)); Lencz, Dominic (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)); Wildgrube, Theresa (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI))
    Abstract: Deep decarbonisation requires large-scale irreversible investments throughout the next decade. Policymakers discuss Carbon Contracts for Differences (CCfDs) to incentivise such investments in the industry sector. CCfDs are contracts between a regulator and a firm that pay out the difference between a guaranteed strike price and the actual carbon price per emission reduction generated by an investment of the firm. We develop an analytical model to assess the welfare effects of CCfDs and compare it to other carbon pricing regimes. In our model, a regulator can offer CCfDs to risk-averse firms that decide upon irreversible investments into an emission-free technology in the presence of risk. Risk can originate from the environmental damage or the variable costs of the emission-free technology. We find that a CCfD can be a beneficial policy instrument as it hedges firms’ risk encouraging investments when the firms’ risk aversion would otherwise inhibit this. In contrast to mitigating firms’ risk by committing to a carbon price early on, CCfDs maintain the regulator’s flexibility to adjust the carbon price if new information reveals. However, as CCfDs hedge the firms’ revenues, they might safeguard production with the emission-free technology, even if it is ex-post inefficient. In this case, regulatory flexibility can be welfare superior to offering a CCfD.
    Keywords: Climate policy; carbon pricing; risk; Carbon Contracts for Difference
    JEL: H23 L51 O31 Q55 Q58
    Date: 2021–11–29
  13. By: Stern, Nicholas
    Abstract: In this paper, Nicholas Stern argues that the COVID-19 and climate crises, and the weaknesses that produced them, should be tackled together and that the response must be a new sustainable, resilient and inclusive approach to growth and development. The paper explores relevant policies and actions and then turns to the changes to economics necessary to pursue these ideas and imperatives. The core finding of The Economics of Climate Change: The Stern Review – that the costs of inaction on climate change are much greater than the costs of action – was compelling when the Review was published in 2006; 15 years on it is even stronger. While greenhouse gas emissions have continued to rise and the impacts of climate change have manifested faster and with greater intensity than expected, the costs of clean energy technologies have been falling further and more quickly than anticipated. Any reasonable estimate of the costs of inaction would be still higher now, and the costs of action lower, than in 2006. The deeper understanding of the problem that we now have, the paper argues, implies that we must shift the focus of our economic analyses towards the dynamics of change, the fostering of investment and innovation necessary, the management of disruption, and the great opportunities that lie in a new form of development.
    JEL: J1
    Date: 2021–10–26
  14. By: Anibal Sanjab; H\'el\`ene Le Cadre; Yuting Mou
    Abstract: In this paper, a transmission-distribution systems flexibility market is introduced, in which system operators (SOs) jointly procure flexibility from different systems to meet their needs (balancing and congestion management) using a common market. This common market is, then, formulated as a cooperative game aiming at identifying a stable and efficient split of costs of the jointly procured flexibility among the participating SOs to incentivize their cooperation. The non-emptiness of the core of this game is then mathematically proven, implying the stability of the game and the naturally-arising incentive for cooperation among the SOs. Several cost allocation mechanisms are then introduced, while characterizing their mathematical properties. Numerical results focusing on an interconnected system (composed of the IEEE 14-bus transmission system and the Matpower 18-bus, 69-bus, and 141-bus distributions systems) showcase the cooperation-induced reduction in system-wide flexibility procurement costs, and identifies the varying costs borne by different SOs under various cost allocations methods.
    Date: 2021–11
  15. By: Gustafsson, Peter (Lund University); Nilsson, Peter (GfK); David, Lucinda (CIRCLE, Lund University); Marañon, Antonia (CIRCLE, Lund University)
    Abstract: Sustainability transitions literature is largely missing the point of view of consumers. This is problematic in efforts to understand how sustainable forms of energy diffuses where consumers are understood as active players in embedding energy efficient technologies in their homes. It remains unclear how consumers make energy-relevant decisions and what constitutes this decision-making process. We address this gap by conducting a random experiment asking consumers to make choices regarding solar energy technologies based on a set of options. Options are framed in either a subtractive or additive way to test how consumers process these choices, whether the type of framing matters in encouraging pro-solar energy behavior, and which solar technologies are preferred. We hypothesize that subtractive framing of energy-relevant choices leads to more options being selected than additive framing, that the type of option framing matters in shaping consumer preferences, and that the framing affects the transition probabilities in the decision-making process. Results show that consumers are susceptible to option framing when making energy-relevant decisions. Respondents were concerned primarily with costs when options were framed additively but exhibited decision difficulties and more pro-solar energy transition behavior when options were framed subtractively. This paper demonstrates the sequential steps in decision-making under subtractive framing, which induces a willingness in consumers to embed more solar energy technologies into their households despite the cost, as opposed to additive framing. This paper contributes a representation of the cognitive process of energy relevant decision-making, empirical evidence on the potentiality of nudging consumers towards more pro-solar energy transition behavior, and the importance of framing tools in encouraging this behavior.
    Keywords: additive and subtractive option framing; experimental design; Markov chain; final state distribution; transition probability; distance from initial model; anchoring
    JEL: C12 C93 D12 D81
    Date: 2021–12–10
  16. By: Elizabeth Asiedu; Théophile Azomahou; Neepa Gaekwad; Mahamady Ouedraogo (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne)
    Abstract: According to the World Bank Enterprises Survey data (WBES), electricity is one of the top constraints to business operations in developing countries. Data from 108 developing countries between 2006 and 2017 show that about 13.6 percent of firms report electricity as the top constraint they face in their activities. This makes electricity the second most important constraint, the first being access to finance (15.2% of firms surveyed). Particularly, in Sub-Saharan Africa (24.53%) and South Asia (23.54%), access to electricity is the first constraint to business development, ahead of political instability and access to finance.
    Abstract: Selon les données de la Banque Mondiale (WBES), les entreprises des pays en développement citent l'électricité comme l'une des principales contraintes qui entravent leurs activités. Les données de 108 pays en développement entre 2006 et 2017 montrent qu'environ 13,6 % des entreprises déclarent l'électricité comme étant le principal obstacle auquel elles sont confrontées dans leurs activités. Cela fait de l'électricité la deuxième contrainte la plus importante, la première étant l'accès au financement (15,2% des entreprises interrogées). En Afrique subsaharienne (24,53%) et en Asie du Sud (23,54%, l'accès à l'électricité est cité comme la première entrave au développement des activités des entreprises, devant l'instabilité politique et l'accès au financement.
    Keywords: Developing countries,Electricity,Contraintes,Pays en dévelopement
    Date: 2021–12–01
  17. By: Kamalanathan Ganesan; Jo\~ao Tom\'e Saraiva; Ricardo J. Bessa
    Abstract: One of the major barriers for the retailers is to understand the consumption elasticity they can expect from their contracted demand response (DR) clients. The current trend of DR products provided by retailers are not consumer-specific, which poses additional barriers for the active engagement of consumers in these programs. The elasticity of consumers demand behavior varies from individual to individual. The utility will benefit from knowing more accurately how changes in its prices will modify the consumption pattern of its clients. This work proposes a functional model for the consumption elasticity of the DR contracted consumers. The model aims to determine the load adjustment the DR consumers can provide to the retailers or utilities for different price levels. The proposed model uses a Bayesian probabilistic approach to identify the actual load adjustment an individual contracted client can provide for different price levels it can experience. The developed framework provides the retailers or utilities with a tool to obtain crucial information on how an individual consumer will respond to different price levels. This approach is able to quantify the likelihood with which the consumer reacts to a DR signal and identify the actual load adjustment an individual contracted DR client provides for different price levels they can experience. This information can be used to maximize the control and reliability of the services the retailer or utility can offer to the System Operators.
    Date: 2021–11
  18. By: Markkula, Tuomas; Takalo, Tuomas
    Abstract: Declining ATM numbers pose a challenge for competition policy and financial regulatory authorities. In this report we review the Finnish experience of regulating the competition in the ATM industry. To analyze the Finnish developments we extend the model of Kopsakangas-Savolainen and Takalo (2014), and draw on the existing literature and benchmarks from the selected other countries. We document how changes in the ATM market regulation and market structure has decoupled the ATM network size from the declining cash use in Finland. The Finnish regulation has almost exclusively focused on foreign fees, while in general it would be better to regulate interchange fees. If the optimal fee regulation is not feasible, the authorities could also consider quantity regulation.
    Keywords: ATM industry,cash,competition policy,optimal regulation,retail payments
    Date: 2021
  19. By: Mr. Itai Agur
    Abstract: The deferred recognition of COVID-induced losses at banks in many countries has reignited the debate on regulatory forbearance. This paper presents a model where the public's own political pressure drives regulatory policy astray, because the public is poorly informed. Using probabilistic game stages, the model parameterizes how time consistent policy is. The interaction between political motivations and time consistency is novel and complex: increased policy credibility can entice the politically-motivated regulator to act in the public's best interest, or instead repel it from doing so. Considering several regulatory instruments, the paper probes the nexus of political pressure, perverse bank incentives and time inconsistent policy.
    Keywords: Time inconsistency;Political economy;Financial stability;Bank regulation.;WP;risk profile;bank risk;bank insolvency;bank owner
    Date: 2021–01–08
  20. By: Miss Estelle X Liu
    Abstract: The latest advancement in financial technology has posed unprecedented challenges for incumbent banks. This paper analyzes the implications of these challenges on bank competitveness, and explores the factors that could support digital advancement in banks. The analysis shows that the traditionally leading role of banks in advancing financial technology has diminished in recent years, and suggests that onoing efforts to catch up to the digital frontier could lead to a more concentrated banking industry, as smaller and less tech-savvy banks struggle to survive. Cross-country evidence has suggested that banks in high-income economies appear to have been the digital leaders, likely benefiting from a sound digital infrastructure, a strong legal and business environment, and healthy competition. Nonetheless, some digital leaders may fall behind in the coming years in adopting newer technologies due to entrenched consumer behavior favoring older technologies, less active fintech and bigtech companies, and weak bank balance sheets.
    Keywords: Banks;WP;bank digitalization;digitalization progress;bank service digitalization;bank characteristic;bank competitiveness; Digitalization; bank concentration; bank condition; bank firm; Emerging technologies; Financial sector development; Global
    Date: 2021–02–19
  21. By: Shafik, Minouche
    Abstract: Capitalism needs a new social contract to better manage the consequences of technology and an increasingly diverse and flexible workforce. That social contract should retain the benefits of flexibility but do a better job of providing security in the form of mandatory benefits, putting a floor on incomes, and investing far more in helping workers adapt to economic shocks and rising automation. It also means a new deal with business that would achieve a more level playing field in how capital and labour are taxed.
    Keywords: capitalism; social contract; labour markets; taxation of capital; OUP deal
    JEL: P00 J08 I38 A13
    Date: 2021–12–01
  22. By: Mats P. Kahl (Leuphana University of Lüneburg)
    Abstract: Competition on the German gasoline market is of interest for economists, competition authorities and the general public alike. In this paper, I analyse how constantly lower gasoline prices in Poland affect the prices set in the German border region. More precisely, I estimate the impact of one additional kilometre of distance to the nearest Polish competitor on the price charged by German gasoline stations. The analysis is based on a complete dataset of German gasoline prices and an accurate assessment of distances. Fitting random effects models for German gasoline prices while controlling for various station characteristics, I find no evidence suggesting that German gasoline stations enter into price competition with their Polish opponents. The analysis of gasoline station infrastructure in the German border region reveals increasingly sparse gasoline station density when approaching the Polish border, along with an increasing share of premium brands. On the one hand, I find evidence suggesting that price competition between German and Polish gasoline stations is dominated by the enormous tax differences that presumably exceed profit margins by far; on the other hand, I reveal the consequences on the market structure that are caused by German gasoline stations anticipating this permanent difference in taxes when deciding upon where to locate their gasoline stations.
    Keywords: gasoline market, cross-border competition, market transparency
    JEL: L13 L41 L92
    Date: 2020–07
  23. By: Thomas Wein (Leuphana University of Lüneburg)
    Abstract: The German petrol station market is characterized by strong intraday price cycles, which probably correspond to the well-known Edgeworth cycles. The prices go up strongly in the late evening or in the middle of the night, fall relatively heavily in the early morning and then go up and down several times in the course of the day. Locally, the analysis is limited to the 26 petrol stations that plausibly form a common market in the Lueneburg region. This essay picks out the specific sequence in which, after generally rising prices during the day, a single supplier is the first to reverse the price trend and lower its price. For this purpose, current price reports are used to define the price reduction event down to the second, and to show only the valid prices of competitors prior to the event. All German petrol stations have to report price changes to the Bundeskartellamt's Market Transparency Department. Tankerkoenig then publishes the full reports. This results in one panel observation for each price reduction event. Out of nearly 300,000 price observations, just over 10,000 panel observations result. Fixed-effect logit estimates are used to test whether the theoretically and economically significant price differences of the Edgeworth cycles explain the behavior of the price cutters, or whether market structure factors, such as brand affiliation/independence of the petrol station, service offerings, or location characteristics predict price-cutting behavior. The novel recording of the price dynamics in the petrol station market by using the accurate petrol station price data to the second indicates promising research of extensive price data and avoids the enormous loss of information in the previously common calculation of average prices at certain times.
    Keywords: Edgeworth cycles, gasoline prices, dynamic pricing
    JEL: L13 L41 K21
    Date: 2020–08
  24. By: Christoph Kleineberg (Leuphana University of Lüneburg)
    Abstract: The geographical definition of markets is a crucial challenge for economists. With the availability of multiple tools to compare prices, the idea of market definition is entering a new era as it infiltrates the digital sphere. Since December 1st, 2013 the market transparency unit of the Federal German Cartel Office is forwarding all prices, for every gasoline type, at every gasoline station in Germany at all times, through consumer information services to consumers by the means of websites or smartphone apps. Gasoline is a perfectly homogenous product as there is no alternative for its consumption by car, bus or truck drivers in the short or medium run. The availability of price data allows us to study what premiums drivers are willing to pay in order to avoid search costs or additional driving distances. The research question is how prices of highway gasoline stations are dependent upon prices offered by street gasoline stations in the vicinity, and what additional price customers are willing to pay to avoid searching for another gasoline station away from the highway. Results indicate that there is a premium of 10 to 11 cents per litre throughout the day and 15 cents per litre in the evening on gasoline sold by stations on the highway. When checked for robustness, results indicate that the pricing behavior of gasoline stations differ depending on the particular market environment. There is no uniform pricing behavior of highway gasoline stations. Some highway gasoline station are setting their prices independently from the gasoline stations in the vicinity, other are acting like regular gasoline stations and do not even charge an additional premium. Furthermore, a high frequency of traffic on highways leads to lower prices whereas a high population density leads to higher prices.
    Keywords: market definition, applied economics, pricing patterns, gasoline market
    JEL: D03 D40 L11
    Date: 2020–07
  25. By: Thomas Wein (Leuphana University of Lüneburg)
    Abstract: Hardcore cartels that make agreements on quantities, prices, or areas, risk receiving both administrative fines from the cartel authority and civil law claims for damages. In addition to these risks, there is a recurring legal policy discussion that cartelist should also face criminal law consequences, such as fines and imprisonment with or without probation. In Germany, for example, companies may be found guilty of an administrative offence or have to answer for damages they cause. The cartel authority may fine employees who contribute significantly to the establishment and enforcement of the cartel within a company. As well, such as in the case of a tendering cartel, individuals may face prosecution. According to Becker's theory of crime, penalties must be at least as high as expected benefits to deter crimes. For example, we start by multiplying cartel infringement by the reciprocal of the probability of detection and punishment. When we factor in expected reductions due to leniency and settlements, it’s easy to see there must be an increase in penalties for them be effective. From the company perspective, there is a substitutive relationship between administrative penalties and compensation payments under private law. Criminal penalties such as fines or imprisonment have a negative impact on an employees’ concept of personal benefits. In theory, deterrence to participate in cartel activities must be based both on the incentives of firms as a whole, and on the individual participants’ perspectives. Sanctions by the Bundeskartellamt in the last decade provide information on the profits made from cartel offences despite current restrictions, and take into account cartel surcharges discussed in the literature. By applying the empirically determined probabilities of punishment, we can calculate the minimum level of fines required to deter cartel infringement ex-post for each case, and compare the figures to the actual penalties. In many cases, the calculated minimum penalties would result in a considerable increase in fines, which would have to be covered either by compensation payments, or criminal sanctions. If custodial sentences were based on the probability of zero compensation payments, and the monetary loss of benefit, the result would sometimes equal an impractically long criminal sentence. Sensitivity analyzes that use alternative values for the probability of punishment usually still result in long prison sentences. In light of these estimates, the practicality of achieving a sufficient degree of deterrence through criminal sanctions is highly questionable. From a legal policy perspective, it would be more effective to raise administrative sanctions to a sufficient level, especially against individuals, if compensation payments cannot be increased substitutionally.
    Keywords: hard-core-cartels, deterrence, criminal penalty
    JEL: L41 K14 K21
    Date: 2020–07

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