nep-reg New Economics Papers
on Regulation
Issue of 2022‒04‒18
eighteen papers chosen by
Christopher Decker
Oxford University

  1. Watch What They Do, Not What They Say: Estimating Regulatory Costs from Revealed Preferences By Mr. Sakai Ando; Adrien Alvero; Kairong Xiao
  2. Price discrimination under nonuniform calling circles and call externalities By Clavijo, R
  3. Economics of Electricity System I: Dispatching, Network Access, and Transmission Capacity Expansion (Japanese) By KANEMOTO Yoshitsugu
  4. Energy Supply Security in Germany Can Be Guaranteed even without Natural Gas from Russia By Franziska Holz; Robin Sogalla; Christian von Hirschhausen; Claudia Kemfert
  5. Collusion and Artificial Intelligence: A Computational Experiment with Sequential Pricing Algorithms under Stochastic Costs By Gonzalo Ballestero
  6. Content-distribution strategies in markets with locked-in customers By Joeffrey Drouard
  7. Regulating platform delivery work in Argentina. Tensions between regulations and the priorities of workers By Francisca PEREYRA; Lorena POBLETE
  8. Economic geography and the efficiency of environmental regulation By Hollingsworth, Alex; Jaworski, Taylor; Kitchens, Carl; Rudik, Ivan
  9. The role of Application Programming Interfaces (APIs) in data governance and digital coordination By POSADA SANCHEZ Monica; POGORZELSKA Katarzyna; VESPE Michele
  10. The impact of competitionfor the market regulatory designs on intercity bus prices By Javier Asensio Ruiz de Alda; Anna Matas Prats
  11. Price cap regulation in the Colombian pharmaceutical market: An impact evaluation By David Bardey; Arturo Harker; Daniela Zuluaga
  12. A Review of Platform Business Models By Markéta MlÄ úchová
  13. Choosing an algorithmic fairness metric for an online marketplace: Detecting and quantifying algorithmic bias on LinkedIn By YinYin Yu; Guillaume Saint-Jacques
  14. A note on the equilibrium of a monopoly providing a pure network good and the stand-alone effect: A reconsideration of the coordination problem By Tsuyoshi Toshimitsu
  15. Bargaining over a Divisible Good in the Market for Lemons By Dino Gerardi; Lucas Maestri; Ignacio Monzón
  16. Innovationen in der Plattformökonomie By Büchel, Jan; Demary, Vera; Engels, Barbara; Graef, Inge; Koppel, Oliver; Rusche, Christian
  17. How do retailers compete on price promotions? Evidence from a temporary promotion ban in Belgium By Hindriks, Jean; Madio, Leonardo; Serse, Valerio
  18. Doubling Back on Double Marginalization By Laurent Linnemer

  1. By: Mr. Sakai Ando; Adrien Alvero; Kairong Xiao
    Abstract: We show that distortion in the size distribution of banks around regulatory thresholds can be used to identify costs of bank regulation. We build a structural model in which banks can strategically bunch their assets below regulatory thresholds to avoid regulations. The resulting distortion in the size distribution of banks reveals the magnitude of regulatory costs. Using U.S. bank data, we estimate the regulatory costs imposed by the Dodd-Frank Act. Although the estimated regulatory costs are substantial, they are significatnly lower than those in self-reported estimates by banks.
    Keywords: Bank regulation, regulatory costs, the Dodd-Frank Act, bunching
    Date: 2022–02–25
  2. By: Clavijo, R
    Abstract: This work develops a competition model between two asymmetrical networks with calling circles, allowing subscribers to derive utility by receiving calls. Unlike the traditional literature predictions, in equilibrium firms have strategies to set off-net price below on-net price. In markets where consumers display strongly concentrated calling patterns, firms can only extract limited surplus from off-net calls. This is reinforced if consumers display weak call externalities, languishing the price strategies to discourage off-net calls. Furthermore, regulating price differential of the large firm can lead consumers to face higher fees compared to discriminatory setting. Therefore, regulators should broaden efforts to measure call externalities and calling circles strength before making decisions on retail tariff regulation.
    Keywords: Calling circles; Call externalities; Network competition; Price differentials.
    JEL: D43 D62 L14
    Date: 2022–04–08
  3. By: KANEMOTO Yoshitsugu
    Abstract: The electricity market reform in Japan, ongoing since 2015, is difficult to understand, because it includes a wide range of policy measures, and the electricity system has complicated technical characteristics. Furthermore, the reforms in many other developed countries are about ten years ahead of Japan, and there is a lot to learn from their successes and failures. This paper reviews the economic aspects of the electricity market, using a simplified model of an electricity network. The difference from the standard microeconomic model is the special feature of the current electricity market, for which, in order to avoid a blackout, supply must follow demand continuously because demand is not price-responsive in the short run. This paper examines basic short-run and long-run issues that can be handled in a deterministic model with no uncertainty, specifically, the properties of the optimal solution concerning dispatching, network access, and transmission expansion, and the market design necessary to achieve the optimal solution.
    Date: 2021–03
  4. By: Franziska Holz; Robin Sogalla; Christian von Hirschhausen; Claudia Kemfert
    Abstract: The Russian war on Ukraine and Germany’s dependence on Russian gas require a rethink of German energy supplies. While there is a heated debate about an immediate energy embargo, Russia could also stop its supplies at any time. To date, Germany has purchased around 55 percent of its natural gas from Russia. DIW Berlin has developed scenarios for how the German energy system could become independent of these imports as quickly as possible in the European context: On the supply side, deliveries from other natural gas exporting countries could compensate for some of the Russian exports. Security of supply would be significantly strengthened if the pipeline and storage infrastructure were used more efficiently. On the demand side, there is a short-term savings potential of 19 to 26 percent of current natural gas demand. In the medium term, a push towards renewable heat supply and higher energy efficiency is particularly necessary. If the energy-saving potential is exploited to the maximum and supplies from other natural gas supplier countries are expanded as far as technically possible at the same time, Germany’s supply of natural gas will be secure in 2022 and in the coming winter 2022/2023, even without Russian imports.
    Date: 2022
  5. By: Gonzalo Ballestero (Universidad de San Andrés)
    Abstract: Firms increasingly delegate their strategic decisions to algorithms. A potential concern is that algorithms may undermine competition by leading to pricing outcomes that are collusive, even without having been designed to do so. This paper investigates whether Q-learning algorithms can learn to collude in a setting with sequential price competition and stochastic marginal costs adapted from Maskin and Tirole (1988). By extending a previous model developed in Klein (2021), I find that sequential Q-learning algorithms leads to supracompetitive profits despite they compete under uncertainty and this finding is robust to various extensions. The algorithms can coordinate on focal price equilibria or an Edgeworth cycle provided that uncertainty is not too large. However, as the market environment becomes more uncertain, price wars emerge as the only possible pricing pattern. Even though sequential Q-learning algorithms gain supracompetitive profits, uncertainty tends to make collusive outcomes more dicult to achieve.
    Keywords: Competition Policy, Artificial Intelligence, Algorithmic Collusion
    JEL: D43 K21 L13
    Date: 2022–02
  6. By: Joeffrey Drouard (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We study how the presence of locked-in customers in a downstream market affects the distribution choice of an upstream content provider. Two asymmetric distributors compete in a mature market and the content provider sells its rights using lump-sum fees. A higher number of locked-in customers reduces the need to resort to exclusivity to relax downstream competition. The content provider therefore sells its rights to both distributors when there is a sufficiently-high proportion of locked-in customers. We show that an exclusive affiliation with the smaller rather than the larger distributor facilitates distributors' rent-extraction, in particular for low-quality content. When there are few locked-in customers, the content provider sells low-quality content to the smaller distributor and high-quality content to the larger distributor. Our results suggest that competition authorities should cautiously evaluate the effects of lower switching costs on consumer welfare. By encouraging exclusive distribution, a lower proportion of locked-in customers may reduce consumer welfare. © 2021 Elsevier B.V.
    Keywords: Customer base,Distribution of content,Exclusivity,Locked-in customers,Switching costs
    Date: 2022–01
  7. By: Francisca PEREYRA; Lorena POBLETE
    Abstract: The quarantine imposed in March 2020 shed light on the essential labour performed by digital delivery platforms’ workers and their precarious labour conditions. In order to protect them, seven draft bills were proposed to Congress in Argentina, oscillating between a salaried/independent classification of these workers. This article uses qualitative and quantitative data to analyse how these regulatory proposals deal with three dimensions that are at the center of workers’ own concerns when it comes to the regulation of the activity: the preservation of flexible schedules, the continuity of income self-regulation – even though this often means overworking – and the need to access effectively social protection – where the absence of occupational hazards insurance stands out.
    Keywords: Argentine
    JEL: Q
    Date: 2022–03–01
  8. By: Hollingsworth, Alex; Jaworski, Taylor; Kitchens, Carl; Rudik, Ivan (Cornell University)
    Abstract: We develop a spatial equilibrium model to evaluate the efficiency and distributional impacts of the leading air quality regulation in the United States: the National Ambient Air Quality Standards (NAAQS). We link our economic model to an integrated assessment model for air pollutants which allows us to capture endogenous changes in emissions, amenities, labor, and production. Our results show that the NAAQS generate over $23 billion of annual welfare gains. This is roughly 80 percent of welfare gains of the second-best NAAQS design, but only 25 percent of the first-best emission pricing policy. The NAAQS benefits are concentrated in a small set of cities, impose substantial costs on manufacturing workers, improve amenities in counties in compliance with the NAAQS, and reduce emissions in compliance counties through general equilibrium channels. These findings highlight the importance of accounting for geographic reallocation and equilibrium responses when quantifying the effects of environmental regulation.
    Date: 2022–03–11
  9. By: POSADA SANCHEZ Monica (European Commission - JRC); POGORZELSKA Katarzyna (European Commission - JRC); VESPE Michele (European Commission - JRC)
    Abstract: Digital interactions are nowadays often steered and controlled by technical and legal conditions defined in Application Programming Interfaces (APIs). Understanding these modulating mechanisms can support policymakers to design actions to foster innovation, monitor data governance processes and ultimately steer the data value distribution.APIs are enablers of data sharing, data access, and control. They are foundational in creating and thriving digital environments such as Digital Platforms or the European Data Spaces. Moreover, APIs connect actors in digital environments. Systemic coordination of these connections is key to guarantee legal and technical stability for fair, trustworthy and competitive digital environments. Additionally, these interfaces dictate what data is accessible, how, by whom, and under which conditions. Understanding the value modulating mechanisms can assist decision making to steer the distribution of data-generated wealth. The control and monitoring of API’s usage and other operational metrics would be essential to understand data flows and steer data governance processes.From a data governance policy perspective, this brief highlights the role of APIs in the digital transformation framework.
    Keywords: data governance, digital transformation, API
    Date: 2022–03
  10. By: Javier Asensio Ruiz de Alda (Department of Applied Economics, Univ. Autonoma de Barcelona, 08193 Bellaterra, Spain); Anna Matas Prats (EDepartment of Applied Economics, Univ. Autonoma de Barcelona, 08193 Bellaterra, Spain)
    Abstract: Spain regulates its intercity bus market by means of a ‘competition for the market’ mechanism, whose design has been modified several times in the last years. This implies that current services are operated under contracts whose conditions are heterogeneous. We take advantage of such fact to empirically measure the impact that regulatory designs may have on fares paid by the users. The results show very large differences between routes whose contracts were awarded under relatively open conditions compared to regionally regulated routes or very old contracts whose concessions were extended and have not been retendered.
    Keywords: intercity buses, prices, tendering, competition for the market.
    Date: 2022–01
  11. By: David Bardey; Arturo Harker; Daniela Zuluaga
    Abstract: We evaluate the impact of a price cap regulation implemented in the Colombian pharmaceutical market between 2011 and 2014. To do so, we take advantage of a unique data set where we observe three sources of variation: i) differences across eighteen groups in the Anatomical Therapeutic Chemical (ATC) classi cation system of the WHO, ii) the existence of regulated (treated) and unregulated (control) groups within each of these eighteen ATC groups, and iii) differences in time (before and after regulation) for the eighteen ATC groups. A triple differences model with fi xed time effects and cluster errors is used to identify the impact of this regulation. We fi nd that the price-cap regulation contributed to reduce prices in three of the eighteen groups and increase average prices for ten of them. We confi rm then that the focal point effect generated by a price-cap regulation can generate unintended distortions. More speci cally, our results reveal that the implementation of this price cap regulation potentially increased -public and private- expenditure by 30%, only for the 2,422 drugs in the eighteen ATC groups we study.
    Keywords: Pharmaceutical market, Price cap regulation, Impact evaluation.
    JEL: I18 I13 H51 D02
    Date: 2021–03–10
  12. By: Markéta MlÄ úchová (Department of Finance, Faculty of Business and Economics, Mendel University in Brno, ZemÄ›dÄ›lská 1, 613 00 Brno, Czech Republic)
    Abstract: The paper focuses on platform business models as ubiquitous features of the digital economy whose economic importance is continuously increasing. Considering their varying definitions and diverse typology, this review of platform business models aims to discuss and evaluate the current heterogeneous literature. In line with fulfilling the aim of the paper, the following research question is addressed: ‘What are the main attributes of platform business models?’ Based on a vast literature review, the paper coins a unified definition and devises a novel typology, distinguishing four main types of platform business models: transaction, innovation, integrated and investment. Furthermore, the importance of both digital data and network effects as the main identified attributes is highlighted. Additionally, the paper devises a novel typology of network effects, amplifying users’ value-creating activities and interconnected relationships. The novel typology of network effects is distinguishing direct, indirect (cross-sided, cross-network or two-sided), data, positive and negative network effects.
    Keywords: Digital economy, business model, platform business model, digital data, network effects
    JEL: F23 L86
    Date: 2022–04
  13. By: YinYin Yu; Guillaume Saint-Jacques
    Abstract: In this paper, we derive an algorithmic fairness metric for the recommendation algorithms that power LinkedIn from the fairness notion of equal opportunity for equally qualified candidates. We borrow from the economic literature on discrimination to arrive at a test for detecting algorithmic discrimination, which we then use to audit two algorithms from LinkedIn with respect to gender bias. Moreover, we introduce a framework for distinguishing algorithmic bias from human bias, both of which can potentially exist on a two-sided platform.
    Date: 2022–02
  14. By: Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University)
    Abstract: In this note, we reconsider the coordination problem in the case of a monopoly providing a pure network good, such as telecommunications: a problem previously examined by Rohlfs (1974). As in Lambertini and Orsini (2004), we find that the coordination problem relating to critical mass is not associated with the presence of network effects but is more the property of consumer expectations. Assuming a pure network good and passive expectations, we demonstrate this from the perspective of Rohlfs (1974; 2001), i.e., the coordination problem is associated with critical mass and the role of a stand-alone effect.
    Keywords: pure network good, network effect, stand-alone value, critical mass, coordination problem, start-up problem, passive expectations, monopoly.
    JEL: D42 D62 L12
    Date: 2022–04
  15. By: Dino Gerardi (Collegio Carlo Alberto/University of Turin); Lucas Maestri (FGV/EPGE); Ignacio Monzón (Collegio Carlo Alberto/University of Turin)
    Abstract: We study bargaining with divisibility and interdependent values. A buyer and a seller trade a divisible good. The seller is privately informed about its quality, which can be high or low. Gains from trade are positive and decreasing. The buyer makes offers over time. Divisibility introduces a new channel of competition between the buyer’s present and future selves. The buyer’s temptation to split the purchases of the high-quality good is detrimental to him. As bargaining frictions vanish and the good becomes arbitrarily divisible, the high-quality good is traded smoothly over time and the buyer’s payoff shrinks to zero.
    Keywords: : bargaining, gradual sale, Coase conjecture, divisible objects, interdependent valuations, market for lemons.
    Date: 2022–01
  16. By: Büchel, Jan; Demary, Vera; Engels, Barbara; Graef, Inge; Koppel, Oliver; Rusche, Christian
    Abstract: Digitale Plattformen sind auf vielen Märkten aktiv und spielen deshalb auch bei Innovationen eine entscheidende Rolle. Sie selbst bringen Innovationen hervor, können aber auch bei den Plattformnutzern und anderen Akteuren des Plattformökosystems Innovationen incentivieren. Plattformen koordinieren und erleichtern Transaktionen zwischen Plattformnutzern. Dadurch können sie schnell auf veränderte Nachfrage und Angebot reagieren sowie die Anzahl an Transaktionen beliebig skalieren. Außerdem haben Plattformen möglicherweise einen höheren Innovationsdruck als andere Unternehmen, weil sie auf Nutzer in besonderem Maße angewiesen sind. Der Zusammenhang zwischen Plattformen und Innovationen wird in dieser Studie aus ökonomischer und rechtlicher Sicht untersucht. Dabei wird insbesondere auf die Typen von Plattformen, die Art der Innovationen im Plattformkontext, die Ziele der Innovationen sowie die Rolle von Regulierung und von Daten eingegangen. Außerdem wird die Entstehung von Innovationen bei Plattformen selbst, ihren Nutzern und im Plattformökosystem analysiert. Drei Fallbeispiele aus dem B2B-Segment ermöglichen einen Blick auf Innovationen in der Plattformökonomie in der Praxis.
    Date: 2022
  17. By: Hindriks, Jean (Université catholique de Louvain, LIDAM/CORE, Belgium); Madio, Leonardo (Université catholique de Louvain, LIDAM/CORE, Belgium); Serse, Valerio (Université catholique de Louvain, LIDAM/CORE, Belgium)
    Abstract: In March 2020, the Belgian government imposed a two-week promotion ban to contain panic buying at the beginning of the Covid-19 Pandemic. Using a unique daily dataset tracking list prices and promotions in different retail chains at the store level, we investigate how retailers set price promotions once the ban was lifted. We find that both frequency and size of promotions reverted to the pre-ban but only several months after the ban was lifted. This effect presents large heterogeneity across retailers: one chain acted as a promotion leader, reintroducing promotions quicker than others. Another large chain acted as a promotion follower, reintroducing promotions more gradually but eventually setting more frequent and larger price promotions than in the pre-ban period. Overall, the promotion ban was a major factor driving up sale prices in Belgian stores.
    Keywords: Price promotions ; promotion ban ; retailers ; competition
    JEL: D22 E30 E31 L11
    Date: 2022–02–01
  18. By: Laurent Linnemer (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique)
    Abstract: "Double marginalization" and "Elimination of Double marginalization" are catch-phrases commonly used in the IO literature. In this note, I trace back the origin of the idea to Chapter IX, on complementary goods monopolies, of Cournot (1838). Through the years Cournot's contribution remained a reference but ended being viewed as a special case of the bilateral monopoly model. Yet, it is worth wondering why the most cited paper on this issue is nowadays Spengler (1950) which contains only an informal treatment of the question. In addition to retracing the origin of the idea, I emphasize the elegant proof of Cournot for the simultaneous game and extend it to the sequential game. I also show that prices are usually higher in the sequential game but that they could be lower if demand is very convex.
    Keywords: JEL codes: B160,B210,K210,L120,L13,L420,Cournot,Complements,Successive monopolies
    Date: 2022–02–24

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