nep-reg New Economics Papers
on Regulation
Issue of 2022‒05‒09
fourteen papers chosen by
Christopher Decker
Oxford University

  1. Pro-competition regulation in the digital economy: the United Kingdom’s Digital Markets Unit By Dunne, Niamh
  2. The Welfare Effects of Mobile Internet Access - Evidence from Roam-Like-at-Home By Martin Quinn; Miguel Godinho de Matos; Christian Peukert
  3. Collusion Between Non-differentiated Two-Sided Platforms By Martin Peitz; Lily Samkharadze
  4. Integrating Distributed Energy Resources: Optimal Prosumer Decisions and Impacts of Net Metering Tariffs By Ahmed S. Alahmed; Lang Tong
  5. Which Households Respond to Electricity Peak Pricing amid High Levels of Electrification? By Garnache, Cloé; Hernaes, Øystein; Imenes, Anders Gravir
  6. Net Neutrality and Universal Service Obligations By Axel Gautier; Jean-Christophe Poudou; Michel Roland
  7. Resale Price Maintenance Guidance in Ireland: A Paradox? By Gorecki, Paul; O'Toole, Francis
  8. Performative Power By Moritz Hardt; Meena Jagadeesan; Celestine Mendler-D\"unner
  9. Moldy Lemons and Market Shutdowns By Jin-Wook Chang; Matt Darst
  10. Non-equilibrium phase transitions in competitive markets caused by network effects By Andrew Lucas
  11. More Laws, More Growth? Evidence from U.S. States By Elliott Ash; Massimo Morelli; Matia Vannoni
  12. The Impact of Product Differentiation on Retail Bundling in a Vertical Market By Angelika Endres-Fröhlich; Burkhard Hehenkamp; Joachim Heinzel
  13. The Impact of Product Qualities on Downstream Bundling in a Distribution Channel By Angelika Endres-Fröhlich; Joachim Heinzel
  14. Economic Geography and the Efficiency of Environmental Regulation By Alex Hollingworth; Taylor Jaworski; Carl Kitchens; Ivan Rudik

  1. By: Dunne, Niamh
    Abstract: The United Kingdom, like many jurisdictions, is introducing more demanding ex ante regulation for the digital economy. Centered on the work of a Digital Markets Unit located within the existing copetition authority, the U.K. proposals are defined by an explicit commitment to “pro-competition” regulation. This article traces the evolution and emerging design of the forthcoming U.K. regime. It then explores the notion of pro-competition regulation in greater detail. While the concept increasingly transcends its domestic origins, this article argues that the balancing act between conventional competition law and traditional regulation that it reflects can be fully understood only when located within the distinctive circumstances of the wider U.K. regulatory landscape.
    Keywords: digital economy; competition law; UK law; pro-competition; Sage deal
    JEL: F3 G3
    Date: 2022–03–21
  2. By: Martin Quinn; Miguel Godinho de Matos; Christian Peukert
    Abstract: We evaluate the welfare effects of the Roam-Like-At-Home regulation, which drastically re-duced the price of accessing the mobile internet for EU residents when traveling abroad in the European Economic Area. Estimates from individual-level usage data suggest that consumer surplus increased by 2.77 EUR/user/travel day. A decomposition shows the heterogeneous impact of the regulation on different user segments. We estimate that around half of the gains stem from a reduction in deadweight loss, i.e., new users accessing the mobile internet. We further show that the impact of the regulation varies with usage intensity abroad and at home, by the nature of the trip (leisure vs. business), and by content type. We discuss implications for content providers and other policy areas such as net neutrality.
    Keywords: Telecom, mobile data, roaming, regulation, consumer surplus
    JEL: L96 L51 O33 D62
    Date: 2022
  3. By: Martin Peitz; Lily Samkharadze
    Abstract: Platform competition can be intense when offering non-differentiated services. However, competition is somewhat relaxed if platforms cannot set negative prices. If platforms collude they may be able to implement the outcome that maximizes industry profits. In an infinitely repeated game with perfect monitoring, this is feasible if the discount factor is sufficiently large. When this is not possible, under some condition, a collusive outcome with one-sided rent extraction along the equilibrium path can be sustained that leads to higher profits than the non-cooperative outcome.
    Keywords: Two-sided markets, tacit collusion, cartelization, price structure, platform competition
    JEL: L41 L13 D43
    Date: 2022–01
  4. By: Ahmed S. Alahmed; Lang Tong
    Abstract: The rapid growth of the behind-the-meter (BTM) distributed generation has led to initiatives to reform the net energy metering (NEM) policies to address pressing concerns of rising electricity bills, fairness of cost allocation, and the long-term growth of distributed energy resources. This article presents an analytical framework for the optimal prosumer consumption decision using an inclusive NEM X tariff model that covers existing and proposed NEM tariff designs. The structure of the optimal consumption policy lends itself to near closed-form optimal solutions suitable for practical energy management systems that are responsive to stochastic BTM generation and dynamic pricing. The short and long-run performance of NEM and feed-in tariffs (FiT) are considered under a sequential rate-setting decision process. Also presented are numerical results that characterize social welfare distributions, cross-subsidies, and long-run solar adoption performance for selected NEM policy designs.
    Date: 2022–04
  5. By: Garnache, Cloé (University of Oslo); Hernaes, Øystein (Ragnar Frisch Centre for Economic Research); Imenes, Anders Gravir (University of Oslo)
    Abstract: We examine heterogeneity in Norwegian households' price responses to critical peak pricing (CPP) on electricity consumption, using a large-scale randomized controlled trial (RCT), high-frequency electricity data, and default enrollment. Increasing the grid transmission charge by 4,067% (corresponding to an increase in the electricity price by 1,242%) leads to a 12.5% reduction in consumption, and virtually eliminates the consumption "peak". In contrast to prior studies from less electrified countries, the effect is broad-based, and similar across income groups. These findings provide a unique lens into the effectiveness of demand-based policies, and their impact across household groups, in a more electrified future.
    Keywords: critical peak pricing, grid transmission charge, peak demand, household heterogeneity, RCT, default enrollment, electrification
    JEL: C93 D12 L94 Q41
    Date: 2022–03
  6. By: Axel Gautier (LCII - Liège Competition and Innovation Institute, HEC Liège); Jean-Christophe Poudou; Michel Roland (CREATE - ULaval - Université Laval [Québec], ULaval - Université Laval [Québec])
    Abstract: This paper analyzes whether repealing net neutrality (NN) improves or decreases the capacity of a regulator to make internet service providers (ISPs) extend broadband coverage through universal service obligations (USOs). We model a two-sided market where a monopolistic ISP links content providers (CPs) to end users with a broadband network of a given bandwidth. A regulator determines whether to submit the ISP to NN or to allow it to supply paid priority (P) services to CPs. She can also impose a broadband USO to the ISP, i.e. she can mandate the broadband market coverage. We show that the greater is the network bandwidth, the more likely the repeal of net neutrality increases ISP profits and social welfare. Regulation can still be necessary, however, as there are bandwidth ranges for which the ISP would benefit from a repeal of NN while such a repeal is detrimental to society.
    Keywords: L96,Internet,Net Neutrality,Universal Service Obligations,Prioritization,Regulation JEL: D21,K23,L12,L51
    Date: 2022–03–07
  7. By: Gorecki, Paul; O'Toole, Francis
    Abstract: In 2021 the Competition and Consumer Protection Commission (CCPC), Ireland’s competition agency, advanced the proposition that, in effect, minimum, fixed and, although it appears inadvertent, maximum resale price maintenance (RPM) are per se breaches of competition law. Such a position is inconsistent with the European Commission’s Vertical Block Exemption Regulation and Guidance, past CCPC decisional practice and the efficiency provisions of both EU and Irish competition law. Prior to the introduction of civil fines for breaches such as RPM, as part of the implementation of the ECN+ Directive in 2022, the CCPC should state whether it views minimum and fixed RPM as per se breaches of competition law and why; or as seems more likely, that given the hardcore characterisation of minimum and fixed RPM by the European Commission, the CCPC envisages it would be difficult but not impossible for the efficiency defence to be successfully employed to justify such forms of RPM. The agency also needs to clearly articulate its position on maximum RPM, which it also appears to treat – inappropriately – in the same way as minimum and fixed RPM.
    Keywords: Resale price maintenance; per se; by object; by effect; Competition & Consumer Protection Commission; Competition Act 2002; Article 101(3); Section 4(5); Vertical Block Exemption Regulation; and Guidance.
    JEL: L11 L42
    Date: 2022–04–20
  8. By: Moritz Hardt; Meena Jagadeesan; Celestine Mendler-D\"unner
    Abstract: We introduce the notion of performative power, which measures the ability of a firm operating an algorithmic system, such as a digital content recommendation platform, to steer a population. We relate performative power to the economic theory of market power. Traditional economic concepts are well known to struggle with identifying anti-competitive patterns in digital platforms--a core challenge is the difficulty of defining the market, its participants, products, and prices. Performative power sidesteps the problem of market definition by focusing on a directly observable statistical measure instead. High performative power enables a platform to profit from steering participant behavior, whereas low performative power ensures that learning from historical data is close to optimal. Our first general result shows that under low performative power, a firm cannot do better than standard supervised learning on observed data. We draw an analogy with a firm being a price-taker, an economic condition that arises under perfect competition in classical market models. We then contrast this with a market where performative power is concentrated and show that the equilibrium state can differ significantly. We go on to study performative power in a concrete setting of strategic classification where participants can switch between competing firms. We show that monopolies maximize performative power and disutility for the participant, while competition and outside options decrease performative power. We end on a discussion of connections to measures of market power in economics and of the relationship with ongoing antitrust debates.
    Date: 2022–03
  9. By: Jin-Wook Chang; Matt Darst
    Abstract: This paper studies competitive market shutdowns due to adverse selection, where sellers post nonexclusive menus of contracts. We first show that the presence of the worst type of agents (moldy lemons) causes markets to fail only if their mass is sufficiently large. We then show that a small mass of moldy lemons can lead to a large cascade of exits when buyers possess outside options. Our results suggest a parsimonious way of generating sudden market shutdowns without relying on institutional details or imposing additional structure on the model. Thus, the simple insights on the properties of market shutdowns we consider are applicable to many different markets and contexts.
    Keywords: Asymmetric information; Market unraveling; Non-exclusive contracting
    JEL: D52 D53 D82 E44 G32
    Date: 2022–03–23
  10. By: Andrew Lucas
    Abstract: Network effects are the added value derived solely from the popularity of a product in an economic market. Using agent-based models inspired by statistical physics, we propose a minimal theory of a competitive market for (nearly) indistinguishable goods with demand-side network effects, sold by statistically identical sellers. With weak network effects, the model reproduces conventional microeconomics: there is a statistical steady state of (nearly) perfect competition. Increasing network effects, we find a phase transition to a robust non-equilibrium phase driven by the spontaneous formation and collapse of fads in the market. When sellers update prices sufficiently quickly, an emergent monopolist can capture the market and undercut competition, leading to a symmetry- and ergodicity-breaking transition. The non-equilibrium phase simultaneously exhibits three empirically established phenomena not contained in the standard theory of competitive markets: spontaneous price fluctuations, persistent seller profits, and broad distributions of firm market shares.
    Date: 2022–04
  11. By: Elliott Ash; Massimo Morelli; Matia Vannoni
    Abstract: This paper analyzes the conditions under which more legislation contributes to economic growth. In the context of U.S. states, we apply natural language processing tools to measure legislative flows for the years 1965-2012. We implement a novel shift-share design for text data, where the instrument for legislation is leave-one-out legal-topic flows interacted with pre-treatment legal-topic shares. We find that at the margin, higher legislative output causes more economic growth. Guided by a simple model of reform decision-making under uncertainty, we find that the effect is driven by contingent clauses, that the effect is concave in the preexisting stock of legislation, and that the effect size is increasing with economic policy uncertainty.
    Keywords: Legislative production, growth, regulatory complexity, economic uncertainty
    Date: 2022
  12. By: Angelika Endres-Fröhlich (Paderborn University); Burkhard Hehenkamp (Paderborn University); Joachim Heinzel (Paderborn University)
    Abstract: We study the effects of product differentiation on the bundling incentives of a two-product retailer. Two monopolistic manufacturers each produce a differentiated good. One sells it to both retailers, while the other only supplies a single retailer. Retailers compete in prices. Retail bundling is profitable when the goods are close substitutes. Only then is competition so intense that the retailer uses bundling to relax competition both within and across product markets, despite an aggravation of the double marginalization problem. Our asymmetric market structure arises endogenously for the case of close substitutes. In this case, bundling reduces social welfare.
    Keywords: retail bundling; upstream market power; double marginalization; product differentiation
    JEL: D43 L13 L42
    Date: 2022–04
  13. By: Angelika Endres-Fröhlich (Paderborn University); Joachim Heinzel (Paderborn University)
    Abstract: Research has found that downstream bundling aggravates the problem of double marginalization in a decentralized channel, but reduces the intensity of downstream price competition when trading homogeneous goods. We study the validity of those results in a set-up where the traded goods have heterogeneous product qualities. We find that the quality relation between the goods determines whether the competition reduction effect of bundling outweighs the aggravation of double marginalization in a decentralized channel. Thus, the quality relation between the goods determines the profitability of downstream bundling. The underlying market consists of a distribution channel with two downstream firms and two price-setting monopolistic upstream producers. One upstream firm sells good 1 exclusively to one downstream firm and the other upstream firm sells good 2 to both downstream firms. The downstream firms compete in prices and the two-product downstream firm has the option to bundle both goods. In particular, we find bundling to be profitable for the two-product downstream firm only when the quality of good 2 exceeds the quality of good 1. However, we find bundling always to be profitable when the production process is controlled by the downstream industry. The impact on total welfare is ambiguous and depends on the distribution of market power in the channel and the quality levels of the goods.
    Keywords: double marginalization; downstream bundling; leverage theory; quality differentiation
    JEL: D21 D61 L11 L15
    Date: 2022–04
  14. By: Alex Hollingworth; Taylor Jaworski; Carl Kitchens; Ivan Rudik
    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.
    Keywords: Clean Air Act, environmental quality, economic geography
    JEL: F18 Q52 Q53
    Date: 2022

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