|
on Regulation |
| By: | Rey, Patrick; Polo, Michele |
| Abstract: | This paper analyses the impact of commitments on antitrust enforcement. These tools, introduced in Europe by the Modernization reform of 2003, are now used intensively by the European Commission and by National Competition Agencies. We consider a setting where a firm can adopt a practice that is either pro- or anti-competitive; the firm knows the nature of the practice whereas the enforcer has only prior beliefs about it. If the firm adopts the practice, the enforcer then decides whether to open a case. When commitments are available, the firm can offer a commitment whenever a case is opened; the enforcer then decides whether to accept it or run a costly investigation that may or may not bring supporting evidence. We show that introducing commitments weakens enforcement when the practice is likely to be anti-competitive. The impact of commitments is however more nuanced when the practice is less likely to be anti-competitive. |
| Keywords: | Antitrust enforcement ; Commitment ; Remedies ; Deterrence |
| JEL: | L40 K21 K42 |
| Date: | 2022–03–14 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:126713&r= |
| By: | Crampes, Claude; Von Der Fehr, Nils-Henrik |
| Abstract: | Reaping the full benefits from cross-border interconnection typically requires reinforcement of national networks. When the relevant parts of the networks are complements, a lack of coordination between national transmission system operators typically results in investment below optimal levels in both interconnectors and national infrastructure. A subsidy to financially sustain interconnector building is not sufficient to restore optimality; indeed, even when possible, such subsidisation may have to be restrained so as not to encourage cross-border capacities that will not be fully utilised due to lack of investment in national systems. |
| Keywords: | electrical grid; interconnector; externality; regulation; regional; cooperation |
| JEL: | H77 K23 L51 L94 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:126719&r= |
| By: | Marten Ovaere; Michiel Kenis; Kenneth Van den Bergh; Kenneth Bruninx; Erik Delarue (-) |
| Abstract: | Since 2015 available cross-border transmission capacity is determined using flowbased market coupling (FBMC) in the day-ahead electricity markets of Central Western Europe. This paper empirically estimates the effect of introducing FBMC on electricity price convergence and cross-border exchange volumes. In the month following the introduction of FBMC, hourly cross-border exchange volumes increased by 1,700 MWh/h, while price convergence between countries increased by 12.2 e/MWh. Since then, observed cross-border exchange volumes decreased to 400 MWh/h below their levels before the introduction of FBMC by the end of 2017. However, when controlling for changing market conditions in the years following the introduction of FBMC, we find that FBMC still has a persistent positive effect of around 1,000 MWh/h on hourly cross-border exchange volumes and of 2 e/MWh on price convergence. Finally, we provide suggestive evidence that decreased commercial transmission capacity on critical branches might have contributed to the decline of the benefits over time. This paper is useful for policymakers, regulators, TSOs, and other stakeholders in light of the extension of FBMC to other regions as it is the target methodology for coupling market zones in the European single electricity market. |
| Keywords: | flow-based market coupling, regression discontinuity, electricity transmission, electricity prices, congestion management, power systems |
| JEL: | Q41 Q42 Q5 Q54 Q58 L94 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:22/1041&r= |
| By: | Regy, Prasanth Vairavana; Sarwal, Rakesh; Stranger, Clay; Fitzgerald, Garrett; Ningthoujam, Jagabanta; Gupta, Arjun; Singh, Nuvodita |
| Abstract: | The distribution sector has been the Achilles’ heel of the Indian power sector, consistently making large losses, reflecting weaknesses in operations, infrastructure, and regulation. We will not be able to achieve a high-growth, low-carbon economy unless the distribution sector achieves profitability. Different states in India have followed different reform trajectories, and today, policy- makers can draw upon a wealth of accumulated experience. This report aims to document the best practices and lessons from across India, and where required, across the world. |
| Date: | 2021–08–03 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:xd2he&r= |
| By: | Harold Houba (Vrije Universiteit Amsterdam); Evgenia Motchenkova (Vrije Universiteit Amsterdam); Hui Wang (Beijing Zhengjiang Science and Technology Co.) |
| Abstract: | Data-driven AI pricing algorithms in on-line markets collect consumer information and use it in their pricing technologies. In the simplest symmetric Hotelling's model such technologies reduce prices and profits. We extend Hotelling's model with vertically differentiated products, cost asymmetries and arbitrary adjustment costs. We provide a characterization of competition in personalized pricing: Sellers compete in offering consumer surplus, personalized prices are constrained monopoly prices and social welfare is maximal. For linear adjustment costs, adopting personalized pricing technology is a dominant strategy for both sellers. We derive conditions under which the most efficient seller increases her profit through personalized pricing. While aggregate consumer surplus increases, consumers with high switching costs may be hurt. Finally, we discuss several extensions of our approach such as oligopoly. |
| JEL: | L1 D43 L13 |
| Date: | 2022–02–24 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20220020&r= |
| By: | Piolatto, A. (Tilburg University, TILEC); Schuett, Florian (Tilburg University, TILEC) |
| Keywords: | anonymous information platforms; opaque products; horizontal competition; experience goods; mismatch costs |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiutil:43e43ee1-c784-4b60-9d62-e49a7964ffd4&r= |
| By: | Martin, Simon; Rasch, Alexander |
| Abstract: | We analyze the effects of better algorithmic demand forecasting on collusive profits. We show that the comparative statics crucially depend on the whether actions are observable. Thus, the optimal antitrust policy needs to take into account the institutional settings of the industry in question. Moreover, our analysis reveals a dual role of improving forecasting ability when actions are not observable. Deviations become more tempting, reducing profits, but also uncertainty concerning deviations is increasingly eliminated. This results in a u-shaped relationship between profits and prediction ability. When prediction ability is perfect, the "observable actions" case emerges. |
| Keywords: | Algorithm,Collusion,Demand forecasting,Unobservable actions,Secretprice cutting |
| JEL: | L41 L13 D43 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:382&r= |
| By: | Rosie Collington (University College London Institute for Innovation and Public Purpose); William Lazonick (The Academic-Industry Research Network) |
| Abstract: | The United States represents the world's largest market for pharmaceutical drugs. It is also the only advanced economy in the world that does not regulate drug prices. There is no upper threshold for the prices of medicines in the United States. List prices are instead set by manufacturers in negotiation with supply-chain intermediaries, though some federal programs have degrees of discretion in price determinations. In practice, this deregulated system means that drug prices in the United States are generally far higher than in other advanced economies, adversely affecting patient accessibility and system affordability. In this paper, we draw on the "theory of innovative enterprise" to develop a framework that provides both a critique of the existing pricing system in the United States and a foundation for developing a new model of pricing regulation to support safety and effectiveness through drug development as well as accessibility and affordability in the distribution of approved medicines to patients. We introduce a regulatory approach we term "Pricing for Medicine Innovation" (PMI), which departs dramatically from the market-equilibrium assumptions of conventional (neoclassical) economics. The PMI approach recognizes the centrality of collective investments by government agencies and business firms in the productive capabilities that underpin the drug development process. PMI specifies the conditions under which, at the firm level, drug pricing can support both sustained investment in these capabilities and improved patient access. PMI can advance both of these objectives simultaneously by regulating not just the level of corporate profit but also its allocation to reinvestment in the drug development process. PMI suggests that although price caps are likely to improve drug affordability, there remain two potential issues with this pricing approach. Firstly, in an innovation system where a company's sales revenue is the source of its finance for further drug development, price caps may deprive a firm of the means to invest in innovation. Secondly, even with adequate profits available for investment in innovation, a firm that is run to maximize shareholder value will tend to use those profits to fund distributions to shareholders rather than for investment in drug innovation. We argue that, if implemented properly, PMI could both improve the affordability of medicines and enhance the innovative performance of pharmaceutical companies. |
| Keywords: | Pharmaceuticals, pricing, innovation, strategy, organization, finance, resource allocation, learning, scale, investment, regulation. |
| JEL: | D2 D4 D8 G3 H3 I11 L2 O3 |
| Date: | 2022–01–28 |
| URL: | http://d.repec.org/n?u=RePEc:thk:wpaper:inetwp176&r= |
| By: | Juan S. Mora-Sanguinetti (Banco de España); Isabel Soler (Banco de España) |
| Abstract: | El objetivo de este documento es presentar los resultados de una novedosa base de datos de regulación sectorial a nivel desagregado en España. En concreto, se han construido indicadores objetivos del volumen de nueva regulación para 23 sectores de actividad aprobada por cada comunidad autónoma, año a año a lo largo del período 1995-2020. En total, se han identificado y ordenado 206.777 normas. Los indicadores ponen de manifiesto que la regulación sectorial en España es creciente a lo largo del tiempo, pero hay diferencias relevantes tanto entre sectores como entre comunidades autónomas. Así, es más frecuente regular año a año los sectores de servicios y agrícola, frente a los industriales. A escala temporal, se observa que es más frecuente aprobar nuevas normas en los períodos recesivos. Este fenómeno se produce especialmente en 2020, en el contexto de la pandemia de COVID-19, destacando los sectores recreativos, la hostelería, el comercio y la industria textil. Estos resultados cuantitativos, que se presentan en forma de panel, abren la posibilidad de realizar en el futuro nuevos estudios sobre el impacto y la idoneidad del marco institucional (en concreto, de su pilar regulatorio) en elementos como el valor añadido sectorial, la productividad por sector o la demografía empresarial. |
| Keywords: | complejidad de la regulación, análisis sectorial, regulación por sector, volumen de regulación, fragmentación de la regulación |
| JEL: | K2 R11 E02 O43 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2202&r= |
| By: | Dominic A. Smith; Sergio Ocampo |
| Abstract: | Increases in national concentration have been a salient feature of industry dynamics in the U.S. and have contributed to concerns about increasing market power. Yet, local trends may be more informative about market power, particularly in the retail sector where consumers have traditionally shopped at nearby stores. We find that local concentration has increased almost in parallel with national concentration using novel Census data on product-level revenue for all U.S. retail stores. The increases in concentration are broad based, affecting most markets, products, and retail industries. We implement a new decomposition of the national Herfindahl Hirschman Index and show that despite similar trends, national and local concentration reflect different changes in the retail sector. The increase in national concentration comes from consumers in different markets increasingly buying from the same firms and does not reflect changes in local market power. We estimate a model of retail competition which links local concentration to markups. The model implies that the increase in local concentration explains one-third of the observed increase in markups. |
| Keywords: | Retail, Local Markets, Concentration, Herfindahl-Hirschman Index |
| JEL: | L8 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:22-07&r= |
| By: | Rodrigo Carril; Andres Gonzalez-Lira; Michael S. Walker |
| Abstract: | We study the effects of intensifying competition for contracts in the context of U.S. Defense procurement. Conceptually, opening contracts up to bids by more participants leads to lower awarding prices, but may hinder buyers' control over non-contractible characteristics of prospective contractors. Leveraging a regulation that mandates agencies to publicize certain contract opportunities, we document that expanding the set of bidders reduces award prices, but deteriorates post-award performance, resulting in more cost overruns and delays. To further study the scope of this tension, we develop and estimate a model in which the buyer endogenously chooses the intensity of competition, invited sellers decide on auction participation and bidding, and the winner executes the contract ex-post. Model estimates indicate substantial heterogeneity in ex-post performance across contractors, and show that simple adjustments to the current regulation that account for adverse selection could provide 2 percent of savings in procurement spending, or $104 million annually |
| Keywords: | Procurement, competition, auctions, incomplete contracts |
| JEL: | D22 D44 D73 H57 L13 L14 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1824&r= |
| By: | Zimmermann, Florian; Keles, Dogan |
| Abstract: | France wants to become carbon-neutral by 2050. Renewable energies and nuclear power are expected to make the main contribution to this goal. However, the average age of nuclear power plants is approaching 37 years of operation in 2022, which is likely to lead to increased outages and expensive maintenance. In addition, newer nuclear power plants are flexible to operate and thus compatible with high volatile feed-in from renewables. Nevertheless, it is controversially discussed whether nuclear power plants can still be operated competitively and whether new investments will be made in this technology. Using an agent-based simulation model of the European electricity market, the market impacts of possible nuclear investments are investigated based on two scenarios: a scenario with state-based investments and a scenario with market-based investments. The results of this investigation show that under our assumptions, even with state-based investments, carbon neutrality would not be achieved with the estimated nuclear power plant capacity. Under purely market-based assumptions, large amounts of gas-fired power plants would be installed, which would lead to an increase in France's carbon emissions. State-based investments in nuclear power plants, however, would have a dampening effect on neighboring spot market prices of up to 4.5 % on average. |
| Keywords: | France,nuclear,electricity market,capacity remuneration mechanism,cross-border effect,investment |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:kitiip:64&r= |
| By: | Miguel Cantillo (Universidad de Costa Rica); José Cascante (Carlos III University); Guillermo Pastrana (Toulouse School of Economics) |
| Abstract: | This paper analyzes the evolution of the Lerner index for Costa Rican banks between 2008 and 2019. We document a significant drop in market power during this period, which we relate to less concentration in loans and deposits. The market became less consolidated as a fringe of 29 small banks gained market share at the expense of large and medium banks. We find that for individual banks, a greater market share of loans, and greater loan specialization are related to higher profitability, while a greater market share of deposits and greater size are related to lower profit margins. |
| Keywords: | Banking structure, Latin American banking sector, Market power, Imperfect competition, Lerner index, Umbrella pricing. |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:fcr:wpaper:202202&r= |
| By: | DUCH BROWN Nestor (European Commission - JRC); GOMEZ-HERRERA Estrella; MUELLER-LANGER Frank; TOLAN Songul (European Commission - JRC) |
| Abstract: | We investigate three alternative but complementary indicators of market power on one of the largest online labour markets (OLMs) in Europe: (1) the elasticity of labour demand, (2) the elasticity of labour supply, and (3) the concentration of market shares. We explore how these indicators relate to an exogenous change in platform policy. In the middle of the observation period, the platform made it mandatory for employers to signal the rates they were willing to pay as given by the level of experience required to perform a project, i.e., entry, intermediate or expert level. We find a positive labour supply elasticity ranging between 0.06 and 0.15, which is higher for expert-level projects. We also find that the labour demand elasticity increased while the labour supply elasticity decreased after the policy change. Based on this, we argue that market-designing platform providers can influence the labour demand and supply elasticities on OLMs with the terms and conditions they set for the platform. We also explore the demand for and supply of AI-related labour on the OLM under study. We provide evidence for a significantly higher demand for AI-related labour (ranging from +1.4% to +4.1%) and a significantly lower supply of AI-related labour (ranging from -6.8% to -1.6%) than for other types of labour. We also find that workers on AI projects receive 3.0%-3.2% higher wages than workers on non-AI projects. |
| Keywords: | Online labour markets, artificial intelligence, market power, exogenous change in platform policy |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:decwpa:202110&r= |
| By: | Flavio M. Menezes (School of Economics, University of Queensland, Brisbane, Australia); John Quiggin (School of Economics, University of Queensland, Brisbane, Australia) |
| Abstract: | The central point of this note is that the relationship between market power and inflation depends crucially on the source of inflationary shocks. To the extent that inflation is driven by demand shocks, firms with market power are likely to respond by increasing margins, and thereby amplifying the inflationary impact of higher demand. By contrast, imperfectly competitive markets typically display only partial cost pass-through. This analysis is relevant to debates about the role of monopoly power in recent US inflation. |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:qld:uq2004:653&r= |
| By: | Haucap, Justus; Heldman, Christina; Rau, Holger A. |
| Abstract: | Many cartels are formed by individual managers of different firms, but not by firms as collectives. However, most of the literature in industrial economics neglects individuals' incentives to form cartels. Although oligopoly experiments reveal important insights on individuals acting as firms, they largely ignore individual heterogeneity, such as gender differences. We experimentally analyze gender differences in prisoner's dilemmas, where collusive behavior harms a passive third party. In a control treatment, no externality exists. To study the influence of social distance, we compare subjects' collusive behavior in a within-subjects setting. In the first game, subjects have no information on other players, whereas they are informed about personal characteristics in the second game. Results show that guilt-averse women are significantly less inclined to collude than men when collusion harms a third party. No gender difference can be found in the absence of a negative externality. Interestingly, we find that women are not sensitive to the decision context, i.e., even when social distance is small they hardly behave collusively when collusion harms a third party. |
| Keywords: | Collusion,Cartels,Competition Policy,Antitrust,Gender Differences |
| JEL: | C92 D01 D43 J16 K21 L13 L41 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:380&r= |
| By: | Cong, Lin William; Mayer, Simon |
| Abstract: | We model the dynamic global competition among national fat currencies, cryptocurrencies, and Central Bank Digital Currencies (CBDCs) in which the strength of a country and of its currency are mutually reinforcing. The rise of cryptocurrencies hurts stronger fat currencies, but can beneft weaker fat currencies by reducing competition from stronger ones. Countries strategically implement CBDCs in response to competition from emerging cryptocurrencies and other currencies. Our model suggests the following pecking order: Countries with strong but non-dominant currencies (e.g., China) are most incentivized to launch CBDC due to both technological frst-mover advantage and potential reduction in dollarization; the strongest currencies (e.g., USD) beneft from developing CBDC early on to nip cryptocurrency growth in the bud and to counteract competitors’ CBDCs; nations with the weakest currencies forgo implementing CBDCs and adopt cryptocurrencies instead. Strong fat competition and the emergence of cryptocurrencies spur fnancial innovation and digital currency development. Our fndings help rationalize recent developments in currency and payment digitization, while providing insights into the global battle of currencies and the future of money. |
| Keywords: | Financial Economics |
| Date: | 2022–03–28 |
| URL: | http://d.repec.org/n?u=RePEc:ags:cuaepw:320020&r= |
| By: | Anja M. Hahn; Konstantin A. Kholodilin; Sofie R. Waltl; Marco Fongoni |
| Abstract: | In 2020, Berlin introduced a rigorous rent-control policy responding to soaring rents by setting a cap on rental prices: the Mietendeckel (rent freeze). The policy was revoked one year later by the German Constitutional Court. Although successful in reducing rents during its duration, the consequences for Berlin’s rental market and adjacent municipalities are not clear. In this paper we evaluate the short-term causal effect of the rent freeze on the supply-side of the market, both in terms of prices and quantities. We develop a theoretical framework capturing the key features of the rent freeze, and test its predictions using a rich pool of detailed rent adverts. In addition, we estimate hedonic-style Difference-in-Differences and Spatial Regression Discontinuity models comparing price trajectories of dwellings inside and outside the policy’s scope. Advertised rents drop significantly upon the policy’s enactment. A substantial rent gap across the administrative border emerges, with rapidly growing rents for Berlin’s (unregulated) adjacent municipalities. Moreover, we document a significant drop in the number of advertised properties for rent, a share of which appears to be permanently lost for the rental sector. |
| Keywords: | First-Generation Rent Control; Rent Freeze; Urban Policy; Local Political Economy; Supply Disruptions; Legal Uncertainty; Berlin |
| JEL: | C14 C43 O18 D04 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1999&r= |
| By: | van Vlokhoven, Has (Tilburg University, Center For Economic Research) |
| Keywords: | markups; market power; Decomposition; reallocation |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiucen:0b616f62-13a7-46f2-b285-9c4788dcb952&r= |
| By: | Jeffrey Mensch; Doron Ravid |
| Abstract: | A seller offers a buyer a schedule of transfers and associated product qualities, as in Mussa and Rosen (1978). After observing this schedule, the buyer chooses a flexible costly signal about his type. We show it is without loss to focus on a class of mechanisms that compensate the buyer for his learning costs. Using these mechanisms, we prove the quality always lies strictly below the efficient level. This strict downward distortion holds even if the buyer acquires no information or when the buyer's posterior type is the highest possible given his signal, reversing the ``no distortion at the top'' feature that holds when information is exogenous. |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2202.09985&r= |
| By: | Xiaoliang Li |
| Abstract: | In this discussion draft, we investigate five different models of duopoly games, where the market is assumed to have an isoelastic demand function. Moreover, quadratic cost functions reflecting decreasing returns to scale are considered. The games in this draft are formulated with systems of two nonlinear difference equations. Existing equilibria and their local stability are analyzed by symbolic computations. In the model where a gradiently adjusting player and a rational (or a boundedly rational) player compete with each other, diseconomies of scale are proved to have an effect of stability enhancement, which is consistent with the similar results found by Fisher for homogeneous oligopolies with linear demand functions. |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2203.09972&r= |
| By: | Pierre-Richard Agénor; Timothy Jackson; Luiz Awazu Pereira da Silva |
| Abstract: | A core-periphery model with financial frictions, imperfect financial integration, and cross-border banking is used to assess the magnitude of regulatory spillovers and the gains from international macroprudential policy coordination. A core global bank lends to its affiliates in the periphery and banks in both regions are subject to risk-sensitive capital regulation. Following an expansionary monetary policy in the core, a countercyclical response in capital requirements induces the global bank to engage in regulatory arbitrage. The magnitude of the resulting cross-border capital flows depends on the degree of economies of scope in lending. Welfare gains associated with countercyclical capital buffers are calculated for three policy regimes: independent policies (Nash), coordination, and reciprocity---a regime in which capital ratios set in the core are imposed on branches operating in the periphery. If regulators set policies on the basis of a narrow financial stability mandate, and these policies are evaluated in terms of household welfare, reciprocity may perform better than Nash, and as well as coordination for all parties, when regulatory leakages are strong. |
| Keywords: | global banking, financial spillovers, regulatory leakages, macroprudential policy coordination. |
| JEL: | E58 F42 F62 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1007&r= |