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on Regulation |
| By: | Martin Besfamille; Nicolás Figueroa; León Guzmán |
| Abstract: | We consider the regulation of a monopoly facing consumers that may evade payments, an important issue in public utilities. To maximize total surplus, the regulator sets the price and socially costly transfers, ensuring that the monopoly breaks-even. With costly effort, the firm can deter evasion. Under unit demand and fixed quality, price is independent of marginal cost, but increasing in the marginal cost of public funds. When quality is endogenous, we find sufficient conditions that imply a non-monotonic relation between price and marginal cost of public funds. We extend the model to consider non-unit demand and moral hazard. |
| Keywords: | regulation, natural monopoly, evasion, marginal cost of public funds |
| JEL: | D42 H20 L43 L51 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9592&r= |
| By: | Gábor Koltay; Szabolcs Lorncz; Tommaso M. Valletti |
| Abstract: | The paper provides new evidence on proxy indicators of market power for major European countries. The data shows moderately increasing average industry concentration over the last two decades, a considerably increasing proportion of high concentration industries, and an overall tendency towards oligopolistic structure. Estimates of aggregate profitability also show a sustained increase over the recent decades for European economies. While the academic and policy debate is not settled as to whether the causes of these trends are policy driven or reflect technological improvement, our findings suggest that competition policy is likely to face more challenges as large companies are becoming more common in more and more industries. |
| Keywords: | mergers, antitrust, European Union, concentrations, industries |
| JEL: | L10 L40 G34 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9640&r= |
| By: | Lukas Block (Paderborn University); Bastian Westbrock (Hamburg University) |
| Abstract: | We study the abilities of competitive markets to produce sufficient energy capacities to meet a fixed energy demand. Renewable energy producers with stochastic outputs and no variable costs compete against conventional energy producers with deterministic, pollutant outputs and increasing marginal costs. We find that either market forces are strong enough to serve the entire demand, or they are too weak such that the market fails and nothing is produced. This crucially depends on the relative cost of renewable energy investments, such that relatively cheap renewable energy causes the market to fail. Welfare analyses show that with increasing levels of conventional energy pollution the ability of the market to produce an efficient outcome further declines. As a policy implication, our findings refute the use of a strategic reserve as a blackout backstop solution. Instead, a capacity mechanism consisting of a tax-and-subsidy scheme can align the market outcome with the efficient solution for all pollution levels and relative costs of renewable energy capacities. |
| Keywords: | Renewable versus conventional energy, capacity mechanisms, strategic reserves, capacity payments |
| JEL: | D41 L11 Q48 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:pdn:dispap:95&r= |
| By: | Simon Martin; Alexander Rasch |
| 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, secret price cutting |
| JEL: | L41 L13 D43 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9629&r= |
| By: | Mascherbauer, Philipp; Kranzl, Lukas; Yu, Songmin; Haupt, Thomas |
| Abstract: | This paper addresses the following question: How can smart energy management system (SEMS) influence the residential electricity consumption at both individual household and national level? First, we developed an hourly optimization model for individual households. The energy cost of an individual household is minimized under given assumptions on outside temperature, radiation, (dynamic) electricity price, and feed-in tariff. By comparing the optimization to the reference scenario, we show the impact of SEMS on grid-electricity consumption and photovoltaic (PV) selfconsumption at the individual household level. Second, to aggregate the results to the national level, we constructed a detailed building stock taking Austria as an example. By aggregating the results of 2112 representative households, we investigate the impact of SEMS in the residential building stock on the national electricity system. As a result, we found that for individual singlefamily-houses (SFHs) with PV (no battery) and heat pump adoption, SEMS can significantly reduce the grid-electricity consumption up to 40.7% for a well-insulated building. At the national level we found that, for the buildings with 5 kWp PV but without hot water tank or battery storage, SEMS can still reduce the grid-electricity consumption by 7.4% by using the building mass as thermal storage. |
| Keywords: | demand-side management,PV,heat pump,energy storage,optimization,building stock |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fisisi:s042022&r= |
| By: | Renjie Bao; Jan De Loecker; Jan Eeckhout |
| Abstract: | To answer the question whether managers are paid for market power, we propose a theory of executive compensation in an economy where firms have market power, and the market for man- agers is competitive. We identify two distinct channels that contribute to manager pay in the model: market power and firm size. Both increase the profitability of the firm, which makes managers more valuable as it increases their marginal product. Using data on executive compensation from Com- pustat, we quantitatively analyze how market power affects Manager Pay and how it changes over time. We attribute on average 45.8% of Manager Pay to market power, from 38.0% in 1994 to 48.8% in 2019. Over this period, market power accounts for 57.8% of growth. We also find there is a lot of heterogeneity within the distribution of managers. For the top managers, 80.3% of their pay in 2019 is due to market power. Top managers are hired disproportionately by firms with market power, and they get rewarded for it, increasingly so. |
| JEL: | E2 J2 L1 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29918&r= |
| By: | Elias, Julio (Universidad del CEMA); Lacetera, Nicola (University of Toronto); Macis, Mario (Johns Hopkins University) |
| Abstract: | Price surges often generate social disapproval and requests for regulation and price controls, but these interventions may cause inefficiencies and shortages. To study how individuals perceive and reason about sudden price increases for different products under different policy regimes, we conduct a survey experiment with Canadian and U.S. residents. Econometric and textual analyses indicate that prices are not seen just as signals of scarcity; they cause widespread opposition and strong and polarized moral reactions. However, acceptance of unregulated prices is higher when potential economic tradeoffs between unregulated and controlled prices are salient and when higher production costs contribute to the price increases. The salience of tradeoffs also reduces the polarization of moral judgments between supporters and opponents of unregulated pricing. In part, the acceptance of free price adjustments is driven by people's overall attitudes about the function of markets and the government in society. These findings are corroborated by a donation experiment, and they suggest that awareness of the causes and potential consequences of price increases may induce less extreme views about the role of market institutions in governing the economy. |
| Keywords: | price surges, price controls, preferences, morality, tradeoffs |
| JEL: | C91 D63 D91 I11 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp15238&r= |
| By: | Marco Del Angel; Gary Richardson |
| Abstract: | Regulatory independence forms a foundation for modern financial systems. To illuminate the value of this ubiquitous institution, we examine a Progressive Era policy experiment in which hitherto independent regulators came under gubernatorial supervision. After this change, failure rates declined during gubernatorial election campaigns for banks under gubernatorial jurisdiction. Declines did not occur during campaigns for other officials or for nationally chartered banks. Declines in bank resolutions during campaigns reduced business bankruptcies. We corroborate these claims with new data and novel IV regressions. Our results indicate that political subservience of financial regulators links electoral and economic cycles. |
| JEL: | G01 G21 G33 H1 H7 K2 L51 N1 N2 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29938&r= |
| By: | Sangeun Ha (The Hong Kong University of Science and Technology); Fangyuan Ma (Peking University HSBC Business School); Alminas Žaldokas (The Hong Kong University of Science and Technology) |
| Abstract: | We examine how executive compensation can be designed to motivate product market collusion. We look at the 2013 decision to close several regional offices of the Department of Justice, which lowered antitrust enforcement for firms located near these closed offices. We argue that this made collusion more appealing to the shareholders, and find that these firms increased the sensitivity of executive pay to local rivals' performance, consistent with rewarding the managers for colluding with them. The affected CEOs were also granted more equity compensation, which provides long-term incentives that could foster collusive arrangements. |
| Keywords: | Product Market Collusion; Corporate Governance; Managerial Compensation |
| JEL: | G34 G38 L22 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:hke:wpaper:wp2021-08&r= |
| By: | Kohei Kawaguchi (Department of Economics, The Hong Kong University of Science and Technology); Toshifumi Kuroda (Department of Economics, Tokyo Keizai University); Susumu Sato (Institute of Economic Research, Hitotsubashi University) |
| Abstract: | This paper proposes a new model of imperfect competition of ad-sponsored media, which can sell “free†products, for a merger analysis applicable to the mobile app industry. To analyze developers' monetizing with both price and advertising in an app, we consider a consumer who faces both budget and time constraints. Moreover, to catch up with newly created and quickly redefined markets, we automate the conversion from in-text product descriptions to numerical product attributes by combining word embedding and dimension reduction techniques. The model defines an equilibrium over consumers' downloads, usage, and in-app purchase decisions and app developers' price and non-price competition. We estimate the model using mobile app data from Japan from 2015 to 2017. The estimate revealed that the marginal disutility of watching advertisements is 12.4% of the ad price for games and 3.1% for other apps. The relevant markets defined by a Small, Non-transitory but Significant Increase in Cost (SSNIC) test are larger than the product categories. Merger simulations show that the app market is, at the static level, competitive and even a merger among the top 10 apps has negligible effects on surplus. The proportional transaction fee imposed by the platform, whose welfare implication is ambiguous because it increases the advertisements and decreases the download prices, is more influential. For game apps, the total surplus is maximized at 12%-15% rather than the actual 30%, increasing welfare by 2.4% and app developers' profits by 44%. For other apps, the total surplus curve is almost flat around 30%. |
| Keywords: | Merger simulation, market definition, SSNIP, antitrust policy, ad-sponsored media, platform transaction fee, app economy, distributed word representation |
| JEL: | L11 L13 L41 L86 M13 M21 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:hke:wpaper:wp2021-03&r= |
| By: | Don Fullerton; Chi L. Ta |
| Abstract: | Our new analytical general equilibrium model is used to study effects of tightening state Renewable Portfolio Standards (RPS) on electricity price, CO2 emissions, fossil fuel electricity generation, and two kinds of renewable generation. We show how those outcomes depend on key state characteristics such as endowments of potential intermittent and non-intermittent (“dispatchable”) renewable sources and the degree of intermittency. Our three extensions investigate key assumptions. We prove theorems and derive empirical hypotheses about what state characteristics makes RPS programs more effective. Using U.S. state-level data from 1990 to 2015, we find the data are consistent with these hypotheses. |
| Keywords: | renewable portfolio standards, emissions, electricity generation, renewable power |
| JEL: | H21 H23 Q58 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9565&r= |
| By: | Frédéric Dobruszkes; Jean-Michel Decroly; Pere Suau-Sanchez |
| Abstract: | Aviation seasonality has been acknowledged for a long time, but no global picture is available. Our paper fills this gap by conducting a worldwide analysis of monthly passenger air services at the airport level, and discussing factors that shape this temporality. Our study found that 36% of airports worldwide (accounting for less than 12% of seats) experience a significant degree of seasonality, and that larger airports are less affected. On the one hand, diverse travel purposes related to larger cities, hubbing, physical geography, remoteness and appropriate weather throughout the year induce stable seat capacity. On the other hand, climate profiles and institutional factors are key factors of peaks. Aviation seasonality has impacts for airport funders and managers, regional development and scholars. |
| Date: | 2022–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:ulb:ulbeco:2013/341140&r= |