nep-reg New Economics Papers
on Regulation
Issue of 2022‒03‒14
nineteen papers chosen by
Christopher Decker
Oxford University

  1. State-Level Electricity Generation Efficiency: Do Restructuring and Regulatory Institutions Matter in the US? By Victor Ajayi; Tom Weyman-Jones
  2. Adjustable Product Attributes, Indirect Network Effects, and Subsidy Design: The Case of Electric Vehicles By Kevin Remmy
  3. Market Pilot Operations: Lessons from Guangdong Province By Yang Liu; Zhigao Jiang; Bowei Guo
  4. The further economic consequences of Brexit: energy By Michael Pollitt
  5. Platform-based business models and financial inclusion By Karen Croxson; Jon Frost; Leonardo Gambacorta; Tommaso Valletti
  6. Retail Electricity Subsidy in Vietnam : Review and Welfare Effect Under Reform By Lam Do, Truong Phuong
  7. Fostering Resiliency with Good Market Design: Lessons from Texas By Peter Cramton
  8. Media and the Internet Access Providers in an Era of Convergence By Pierre-Jean Benghozi; Françoise Benhamou
  9. Policy complementarities to curb market power and raise real wages By Eckardt, Marcel Steffen; Neugart, Michael
  10. Conditions for efficient entry and clustering By Smirnov, Vladimir; Waity, Andrew
  11. The Inner Workings of a Hub-and-Spoke Caretl in the Automotive Fuel Industry By Daniel Chaves; Marco Duarte
  12. Capacity choice with upstream investment By Qing Hu; Tomomichi Mizuno
  13. Market Volatility, Digital Transformation and Innovation changed the way of competition By Wijenayaka, Amal
  14. Market Power in Small Business Lending: A Two-Dimensional Bunching Approach By Natalie Cox; Ernest Liu; Daniel Morrison
  15. Inflated Recommendations By Martin Peitz; Anton Sobolev
  16. Banking deregulation and consumption of home durables By Damar, H. Evren; Lange, Ian; McKennie, Caitlin; Moro, Mirko
  17. The Data Privacy Paradox and Digital Demand By Long Chen; Yadong Huang; Shumiao Ouyang; Wei Xiong
  18. The Role of Regulation and Bank Competition in Small Firm Financing: Evidence from the Community Reinvestment Act By Panagiotis Avramidis; George Pennacchi; Konstantinos Serfes; Kejia Wu
  19. Search and Information Frictions on Global E-Commerce Platforms: Evidence from AliExpress By Jie Bai; Maggie X. Chen; Jin Liu; Xiaosheng Mu; Daniel Yi Xu

  1. By: Victor Ajayi (EPRG, CJBS, University of Cambridge); Tom Weyman-Jones (School of Business and Economics, Loughborough University)
    Keywords: Electricity generation, technical efficiency, marginal effect, restructuring, regulatory institutions
    JEL: C23 D24 L51 L94
    Date: 2021–09
  2. By: Kevin Remmy
    Abstract: This paper develops a structural model of endogenous product attribute choice in the presence of indirect network effects to study electric vehicle (EV) subsidies. Using data on the German EV market from 2012-2018, I find that a support scheme increased EV sales by 98% but led to strong range distortions. When designing subsidies, these distortions create a trade-off between optimizing different policy objectives. Large purchase subsidies maximize EV sales whereas large charging station subsidies maximize consumer and total surplus. The results suggest that policymakers should carefully weigh the benefits of increasing EV sales against the distortions this causes.
    Keywords: network externalities, product attribute choice, elctric vehicles, subsidies
    JEL: D12 D62 H23 L62 Q55
    Date: 2022–02
  3. By: Yang Liu (Renmin University of China); Zhigao Jiang (Energytalent Consulting Co., Ltd); Bowei Guo (Renmin University of China)
    Keywords: China power market reform, market failures, local market power, electricity spot market
    JEL: Q41 Q48 D61
    Date: 2021–09
  4. By: Michael Pollitt (EPRG, Cambridge Judge Business School, University of Cambridge)
    JEL: L94
    Date: 2021–09
  5. By: Karen Croxson; Jon Frost; Leonardo Gambacorta; Tommaso Valletti
    Abstract: Three types of digital platforms are expanding in financial services: (i) fintech entrants; (ii) big tech firms; and (iii) increasingly, incumbent financial institutions with platformbased business models. These platforms can dramatically lower costs and thereby aid financial inclusion – but these same features can give rise to digital monopolies and oligopolies. Digital platforms operate in multi-sided markets, and rely crucially on big data. This leads to specific network effects, returns to scale and scope, and policy trade-offs. To reap the benefits of platforms while mitigating risks, policy makers can: (i) apply existing financial, antitrust and privacy regulations, (ii) adapt old and adopt new regulations, combining an activity and entity-based approach, and/or (iii) provide new public infrastructures. The latter include digital identity, retail fast payment systems and central bank digital currencies (CBDCs). These public infrastructures, as well as ex ante competition rules and data portability, are particularly promising. Yet to achieve their policy goals, central banks and financial regulators need to coordinate with competition and data protection authorities.
    Keywords: financial inclusion, fintech, big tech, platforms
    JEL: E51 G23 O31
    Date: 2021–12
  6. By: Lam Do, Truong Phuong (Monash University)
    Abstract: This paper examines the subsidy in the retail electricity market from two perspectives: cash transfer and quantity–based subsidy. The cash transfer is measured by three dimensions: benefit incidence, beneficiary incidence, and materiality; The quantity-based subsidy is established under the increasing block rate pricing. Overall, both subsidies are not efficient in supporting the poor. To improve the quantity–based subsidy, three proposals, along with the proposal from the company running the market are examined. The welfare effect under these plans is measured by the change in consumer surplus. Findings from this paper show that the reform should let the first blocks reflect the full marginal cost. Moreover, the price structure should be changed in both marginal price and the intervals. To mitigate the reduction in the quantity–based subsidy, the government should improve the cash transfer by reducing the extortion and targeting more efficiently, especially to poor households who live in rented houses.
    Keywords: Vietnam retail electricity market ; block rate pricing ; welfare effect ; electricity externalities ; demand function ; cash transfer ; quantity-based subsidy JEL Classification: D12 ; D63 ;p Q41 ; Q48
    Date: 2021
  7. By: Peter Cramton (University of Cologne and the University of Maryland (emeritus))
    Abstract: In February 2021, winter storm Uri brought extreme cold to Texas for many days. The cold caused a spike in electricity and natural gas demand and simultaneously a sharp drop in supply. The electricity shortage caused 4.5 million Texans to lose power for multiple days. Many lost water service too. Storm damage was extensive, including many deaths. This paper examines what happened and offers solutions to improve the reliability and resilience of critical infrastructures. Improved communication before and during the storm would limit the damage. Natural gas market reforms would enhance the reliability of the gas supply, enabling more generators to produce power. Improved energy efficiency would limit the cold-induced demand spike. In addition to ongoing initiatives to integrate storage and distributed generation, the system operator should introduce a voluntary forward energy market that lets market participants better manage risk and plan resources to meet demand. Price-responsive demand should also be encouraged to limit demand surges in cold snaps.
    Date: 2022–02
  8. By: Pierre-Jean Benghozi (CNRS - Centre National de la Recherche Scientifique, i3-CRG - Centre de recherche en gestion i3 - X - École polytechnique - Université Paris-Saclay - CNRS - Centre National de la Recherche Scientifique); Françoise Benhamou
    Abstract: Technological breakthroughs are an enabler in the convergence between telecommunications operators and media. Close economic examination put at stake the interpretation based on vertical integration and complementary strategies of telecom operators and content producers. Approach to convergence must be renewed because situation is not the same as 20 years ago. The multiplication of TV channels, the development of Internet, and the growing bandwidths have resulted in the explosion of online content. This has contributed to the expansion and predominance of digital platforms that invested significantly in content production and network infrastructure. These original converging strategies call for regulatory issues because the changes raise new challenges associated with the new market structure: segmentation of regulation perspective, competitive and non-price strategies, and net neutrality.
    Keywords: Telecoms industry,Convergence,Media regulation,Telecoms regulation,Internet platforms
    Date: 2021–03–17
  9. By: Eckardt, Marcel Steffen; Neugart, Michael
    Abstract: Recent evidence suggests that anti-competitive behavior of firms negatively affects workers’ real wages. Typically, policy actions relate to antitrust regulation and rarely to measures that curb employers’ monopsony power. We show that policymakers who want to raise workers’ real wages should address both types of market power simultaneously to gain from a policy complementarity.
    Date: 2022
  10. By: Smirnov, Vladimir; Waity, Andrew
    Abstract: We outline the conditions for efficient entry order and clustering in a triopoly preemption game in which firms differ in their sunk costs of entry. The critical factor turns out to be how symmetric the potential entrants are. If the cost asymmetry between the firms is sufficiently large, entry is always in the efficient order. On the other hand, if firms are relatively symmetric, entry order can be inefficient in that the firm with the second-lowest entry cost enters first. Furthermore, if there is any difference in entry costs between the two most efficient firms, there is never clustering (which is when firms enter the market at the same time). Lastly, in contrast to the case with relatively symmetric firms, when the cost asymmetry between firms is large, the leader's entry time in the triopoly is always earlier than it is in a duopoly.
    Keywords: timing games; asymmetric firms; clustering; inefficient entry
    Date: 2021–11
  11. By: Daniel Chaves (University of Western Ontario); Marco Duarte
    Abstract: We analyze a hub-and-spoke cartel in the Brazilian automotivefuel industry. Using the court documents and detailed data on the supply chain we uncover three mechanisms beyond information sharing used by wholesalers (hub) to help retailers (spokes) solve the obstacles of price coordination: vertical transfers across asymmetric spokes; subsidies during punishment; and cost stabilization. We argue that wholesalers benefited from the cartel by being the exclusive supplier during the scheme. We use the synthetic control approach to quantify how successful the cartel was in increasing markups. We find that not only retailers, but wholesalers benefited from the cartel.
    Keywords: antitrust; Hub-and-Spoke collusion; vertical restraints
    JEL: K21 L12 D43
    Date: 2021
  12. By: Qing Hu (Faculty of Economics, Kushiro Public University of Economics / Research Fellow, Graduate School of Economics, Kobe University); Tomomichi Mizuno (Graduate School of Economics, Kobe University)
    Abstract: We consider a vertically related market with an upstream firm engaging in cost-reducing investment and n downstream firms competing on quantity. We analyze the capacity choice by downstream firms and find that over-capacity occurs in equilibrium if the number of downstream firms is large or the upstream investment is efficient.
    Date: 2022–02
  13. By: Wijenayaka, Amal
    Abstract: The world is rapidly changing. As a result, organizations have to find new ways to compete with close competitors. It is challenging to use traditional methods and ways. Advertising and price war are not gaining sustainable competitive advantage further. Most past researches mentioned that Innovation is the key to future success. Furthermore, it is required to transform to digitalization. It provides new insight into the organization. Market volatility is a huge challenge to the organization. However, it can be managed with digitalization and Innovation.
    Date: 2022–01–05
  14. By: Natalie Cox (Princeton University); Ernest Liu (Princeton University); Daniel Morrison (Princeton University)
    Abstract: Do government-funded guarantees and interest rate caps primarily benefit borrowers or lenders under imperfect competition? We study how bank concentration impacts the effectiveness of these policy interventions in the small business loan market. Using data from the Small Business Administration's (SBA) Express Loan Program, we estimate a tractable model of bank competition with endogenous interest rates, loan size, and take-up. We introduce a novel methodology that exploits loan "bunching" in the two dimensional contract space of loan size and interest rates, utilizing a discontinuity in the SBA's interest rate cap. In concentrated markets, we find that a modest decrease in the cap would increase borrower surplus by up to 1.5%, despite the rationing of some loans. In concentrated markets with a 50% loan guarantee, each government dollar spent raises borrower surplus by $0.64, boosts lender surplus by $0.34, and generates $0.02 of deadweight loss.
    Keywords: government, small business, loans, interest rates
    JEL: H81 E43
    Date: 2021–08
  15. By: Martin Peitz; Anton Sobolev
    Abstract: Biased recommendations arise naturally in a market with heterogeneous consumers: A seller o ers a product to a mix of "picky" and "flexible" consumers who can purchase through an intermediary or directly from the seller. A picky consumer either encounters a good or a bad match, while a "flexible" consumer is indifferent about the product design. Consumers know whether they are picky or flexible, but picky consumers observe match quality only after purchase and, therefore, rely on the intermedi- ary's recommendation. We provide conditions under which the intermediary decides to recommend a welfare-reducing bad match with positive probability, resulting in inflated recommendations. A regula- tory intervention that prohibits recommending bad matches may backfire. The optimal regulation that limits the rate at which the product can be recommended performs better than the laissez-faire.
    Keywords: intermediation, digital platforms, recommendation bias, recommender system, asymmetric information, experience good, e-commerce
    JEL: L12 L15 D21 D42 M37
    Date: 2022–02
  16. By: Damar, H. Evren; Lange, Ian; McKennie, Caitlin; Moro, Mirko
    Abstract: We exploit the spatial and temporal variation of the staggered introduction of interstate banking deregulation across the U.S. to study the relationship between credit constraints and consumption of durables. Using the American Housing Survey from 1981 to 1989, we link the timing of these reforms with evidence of a credit expansion and household responses on many margins. We find evidence that low-income households are more likely to purchase new appliances after the deregulation. These durable goods allowed households to consume less natural gas and spend less time in domestic activities after the reforms.
    Keywords: banking deregulation,credit constraints,energy consumption,durable goods
    JEL: D12 G2 Q41
    Date: 2022
  17. By: Long Chen (Luohan Academy); Yadong Huang (Luohan Academy); Shumiao Ouyang (Princeton University); Wei Xiong (Princeton University)
    Abstract: A central issue in privacy governance is understanding how users balance their privacy preferences and data sharing to satisfy service demands. We combine survey and behavioral data of a sample of Alipay users to examine how data privacy preferences affect their data sharing with third-party mini-programs on the Alipay platform. We find that there is no relationship between the respondents’ self-stated privacy concerns and their number of data-sharing authorizations, confirming the puzzling data privacy paradox. Instead of attributing this paradox to the respondents’ unreliable survey responses, resignation from active protection of their data privacy, or behavioral factors in making their data-sharing choices, we show that this phenomenon can be explained by a curious finding that users with stronger privacy concerns tend to benefit more from using mini-programs. This positive relationship between privacy concerns and digital demands further suggests that consumers may develop data privacy concerns as a by-product of the process of using digital applications, not because such concerns are innate.
    Keywords: data sharing, privacy
    JEL: D12 D91 M15
    Date: 2021–05
  18. By: Panagiotis Avramidis; George Pennacchi; Konstantinos Serfes; Kejia Wu
    Abstract: This paper analyzes how bank regulation that promotes greater access to credit impacts the financing of targeted small firms. It develops a model where banks compete with trade creditors to fund small firms and applies it to study the effects of the Community Reinvestment Act (CRA). The empirical tests reveal that a CRA-induced increase in bank loans reduces small firms’ use of relatively expensive trade credit. The effect is more profound in low- and medium-income areas where financial constraints are tighter due to low bank competition. The effect is also larger for small firms that operate in trade credit-dependent industries.
    Keywords: Competition; Regulation; Trade credit; Small business loans
    JEL: G14 G21 L13 L50 L49
    Date: 2022–02–17
  19. By: Jie Bai (Harvard Kennedy School); Maggie X. Chen (George Washington University); Jin Liu (New York University); Xiaosheng Mu (Princeton University); Daniel Yi Xu (Duke University)
    Abstract: We study how search and information frictions shape market dynamics in global e-commerce. Observational data and self-collected quality measures from AliExpress establish the existence of search and information frictions. A randomized experiment that offers new exporters exogenous demand and information shocks demonstrates the potential role of sales accumulation in enhancing seller visibility and overcoming these demand frictions. However, we show theoretically and quantitatively that this demand-reinforcement mechanism is undermined by the large number of online exporters. Our structural model rationalizes the experimental findings and quantifies efficiency gains from reducing the number of inactive sellers.
    Keywords: global e-commerce, exporter dynamics, product quality, information frictions, search frictions
    JEL: F14 L11 O12
    Date: 2021–09

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