nep-reg New Economics Papers
on Regulation
Issue of 2022‒07‒11
eighteen papers chosen by
Christopher Decker
Oxford University

  1. Copper to fibre migration: Regulated access fees incentivising migration By Eltges, Fabian; Fourberg, Niklas; Wiewiorra, Lukas
  2. Regulatory interventions in consumer financial markets: the case of credit cards By Galenianos, Manolis; Gavazza, Alessandro
  3. Exclusive Contracts and Multihoming Agents in Two-sided Markets By Fuyuki Saruta
  4. Abuse of dominance in intraday coupled electricity markets/ Impact onmarket integration of renewables By Podlesnaya Alina
  5. DLT-based enhancement of cross-border payment efficiency - a legal and regulatory perspective By Dirk Zetzsche; Linn Anker-Sørensen; Maria Lucia Passador; Andreas Wehrli
  6. Dynamic monopoly and consumers profiling accuracy By Didier Laussel; Ngo Van Long; Joana Resende
  7. Simplifying the Measure of Concentration from Common Ownership: A Note By Antonio Estache; Maxime Katté; Christophe Kieffer
  8. Globalization and market power By Giammario Impullitti; Syed Kazmi
  9. Firm Competition and Cooperation with Norm-Based Preferences for Sustainability By Inderst, Roman; Sartzetakis, Eftichios S.; Xepapadeas, Anastasios
  10. Collaboration, Decarbonization, and Distributional Effects By Mathias Mier; Kais Siala; Kristina Govorukha; Philip Mayer
  11. Marshall Lecture 2020: the measure of monopsony By Langella, Monica; Manning, Alan
  12. Pareto-Improving Data-Sharing By Ronen Gradwohl; Moshe Tennenholtz
  13. The Dynamic Impact of Market Integration: Evidence from renewable energy expansion in Chile By Luis E. GONZALES; ITO Koichiro; Mar REGUANT
  14. Does Public Capital Expenditure Reduce Energy Poverty? Evidence from Nigeria By Stephen K. Dimnwobi; Favour C. Onuoha; Benedict I. Uzoechina; Chukwunonso Ekesiobi; Ebele S. Nwokoye
  15. Railroad Bailouts in the Great Depression By Lyndon Moore; Gertjan Verdickt
  16. Technology Lock-In and Optimal Carbon Pricing By Jonathan T. Hawkins-Pierot; Katherine R. H. Wagner
  17. Unaware consumers and disclosure of deficiencies By Schmitt, Sefanie Y.; Bruckner, Dominik
  18. Optimal Information Design of Online Marketplaces with Return Rights By Jonas von Wangenheim

  1. By: Eltges, Fabian; Fourberg, Niklas; Wiewiorra, Lukas
    Abstract: To shed more light on consumer-sided demand migration, we adapt Chen & Riordan's (2007) Spokes Model of spatial competition to a duopolistic-multi-product firm setting in which both firms simultaneously offer fibre and copper products comparable to Brito & Tselekounis (2017). Our model will be designed as a 2x2-product Spokes Model where two operators, an Incumbent and an Entrant, offer each a fibre and a copper based end customer internet product, with the Entrant paying an access fee for the latter one. Deriving operators' profits given demand shifts induced by asymmetric pricing strategies, we find that both operators experience trade-offs in the wholesale access fees, with the trade-off of the Incumbent being more binding as he has the higher interest in keeping demand in the copper network high. We characterise the relation of fibre take-up and welfare by finding out that fibre take-up and welfare both increase simultaneously in the copper wholesale access fee up to a critical threshold. Beyond this threshold, additional take-up will be paid by loss of total welfare.
    Date: 2021
  2. By: Galenianos, Manolis; Gavazza, Alessandro
    Abstract: We build a framework to understand the effects of regulatory interventions in creditmarkets, such as caps on interest rates. We focus on the credit card market, in whichwe observe U.S. consumers borrowing at high and very dispersed interest rates despitereceiving many credit card offers. Our framework includes twomain features to accountfor these patterns: the endogenous effort of examining offers and product differentiation.Our calibration suggests that most borrowers examine few ofthe offers they receive, andthereby forego cards with low interest rates and high non-price benefits. The calibratedmodel implies that interest-rate caps reduce credit supplyand significantly curb lenders’market power, thereby increasing consumer surplus. Moderate caps may yield largergains in consumer surplus than tighter ones.
    Keywords: 771004
    JEL: D83 D14 G28
    Date: 2022–03–24
  3. By: Fuyuki Saruta (Faculty of Commerce, Doshisha University and Junior Research Fellow, Research Institute for Economics & Business Administration (RIEB), Kobe University, JAPAN)
    Abstract: We investigate a two-sided market model in which two platforms compete for sellers and buyers who can participate in multiple platforms (multihoming), and one of the two platforms can make exclusive contracts with sellers. The platform faces a trade-off when it enters into exclusivity agreements with sellers, which gives it an advantage when competing for buyers but reduces its revenue from the seller side. In addition, we expect that the existence of multihoming buyers weakens the platform’s incentive to have an exclusive contract with sellers. Even when buyers can multihome, does a platform have an incentive to make exclusive contracts with sellers? If so, how does exclusive dealing affect social welfare? We obtain the following results. First, in equilibrium, the platform makes exclusive contracts with all sellers or not at all. It offers exclusive contracts to all sellers if the revenue from the buyer side is expected to be somewhat higher than the revenue from the seller side; if sellers' network externality on buyers is sufficiently large (small), it chooses fully exclusive dealing (nonexclusive dealing). Second, exclusive dealing is preferable (detrimental) to social welfare when the network externality is sufficiently large (small). Exclusive dealing encourages the multihoming of buyers, which allows agents to have more interactions on one platform and prompts more buyers to obtain stand-alone benefits from multiple platforms.
    Keywords: Matching; Exclusive contracts; Two-sided markets; Multihoming; Platform competition
    JEL: D43 D62 L13 L14
    Date: 2022–06
  4. By: Podlesnaya Alina (Department of Economics, Lomonosov Moscow State University)
    Abstract: Electricity market coupling aimed at reducing electricity price differential by optimizing cross-border capacity allocation is the main mechanism of the EU electricity market integration. The paper considers the problem of the abuse of dominance in intraday coupled electricity markets and the consequences of this abuse for the market integration of renewables. The paper found that the abuse of dominance in coupled markets could occur when the owner of essential facilities (i.e. power exchange) prohibits his competitors access to the infrastructure necessary for the intraday coupled auctions (i.e. shared order book). Since intraday coupled auctions combine two main instruments of market integration of renewables, i.e. close to real time trading and optimization of cross-border capacity allocation, distortion of competition in intraday coupled electricity markets can prevent efficient market integration of renewables and the greening of the power industry.
    Keywords: market coupling, intraday electricity market, renewables, abuse of dominance
    JEL: K21 L40 L41 Q20
    Date: 2022–04
  5. By: Dirk Zetzsche; Linn Anker-Sørensen; Maria Lucia Passador; Andreas Wehrli
    Abstract: Financial law and regulation have, to date, assumed that regulated activities and functions are concentrated in a single legal entity responsible and accountable for operations and compliance. Even with regard to financial market infrastructure where the regulatory perspective acknowledges the need for interoperability of many entities as a system, each entity is subject to its own rules and regulations, and can thus meet its own compliance requirements independent of other system participants. The entity-focused regulatory paradigm is under pressure in the world of DLT-based payment arrangements where some ledgers, and thus the performance of the services as such, are distributed. DLT arrangements could provide an alternative to the traditional reliance on a mutually trusted central entity to transfer funds and enable the creation of new foundational infrastructures by distributing technical functions or linking existing systems. As such, we identify and outline concepts for use cases where DLT is potentially improving the efficiency of cross-border payments, namely a Best Execution DLT, a DLT application for a Network of Central Banks, a DLT as an AML/KYC utility, as well as DLT arrangements for an Identity Platform, a Small Payments Platform and, finally, an Interoperability Platform connecting multiple closed-loop and proprietary banking systems.
    Keywords: distributed ledgers, blockchain, payments, central banks, cross-border payments, law
    JEL: G20 G21 G28 E42 E58 K23 K24 O16
    Date: 2022–05
  6. By: Didier Laussel (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université); Ngo Van Long (McGill University = Université McGill [Montréal, Canada]); Joana Resende (Universidade do Porto = University of Porto)
    Abstract: Using a Markov-perfect equilibrium model, we show that the use of customer data to practice intertemporal price discrimination will improve monopoly profit if and only if information precision is higher than a certain threshold level. This U-shaped relationship lends support to a popular view that knowledge is good only if it is sufficiently refined. When information accuracy can only be achieved through costly investment, we find that investing in profiling is profitable only if this allows to reach a high enough level of information precision. Consumers expected surplus being a hump-shaped function of information accuracy, we show that consumers have an incentive to lobby for privacy protection legislation which raises the cost of monopoly's investment in information accuracy. However, this cost should not dissuade firms to collect some information on customers' tastes, as the absence of consumers' profiling is actually detrimental to consumers.
    Keywords: big data,consumers' collective action on privacy protection legislation,consumers profiling,dynamic monopoly,endogenous investment in profiling capability
    Date: 2022
  7. By: Antonio Estache; Maxime Katté; Christophe Kieffer
    Abstract: The note presents a simpler alternative to the Modified Herfindahl-Hirschman Index to measure the risks of market concentration in the presence of common owners such as institutional investors owning shares in multiple firms expected to compete in the same market. This new measure, the Amplified Herfindahl-Hirschman Index, delivers the same insights as the MHHI but is less data intensive and less sensitive to outliers. It thus offers a more “user friendly” and more precise alternative to competition and regulatory agencies as a decision trigger for more detailed investigations of market power risks associated with the growing presence of common ownership.
    Keywords: Antitrust, Common Ownership, Institutional Investors, Market Power, Modified Herfindahl-Hirschman Index
    Date: 2022–06
  8. By: Giammario Impullitti; Syed Kazmi
    Abstract: Economic theory suggests that the markup is the most appropriate measure of market power and that its relationship with trade is rich and complex. Trade liberalisation can reduce markups via a decline in the residual domestic demand but also increase it via several channels. First, the incomplete pass-through of the cost reductions produced by lower input tariffs. Second, trade leads to more concentrated markets via entry and exit, putting upward pressure on markups. Third, market shares reallocation toward larger, more powerful firms, increase the aggregate markup. We propose a simple model of trade under oligopoly which incorporates all these channels. Using a large episode of trade liberalisation in Spain, we test this rich set of mechanisms linking trade and markups. The overall effects of trade on firm level and aggregate markups is pro-competitive but we find evidence of offsetting effects via the other channels. In particular, we show that firms protected by higher barriers to entry, measured as high intangible investment, R&D spending and patents, experience a weaker reduction in markups. Supporting a new theoretical insight emerging from our model that the feedback effect on trade-induced concentration on markups is stronger with higher barriers to entry.
    Keywords: international trade; markups; oligopoly
    Date: 2022
  9. By: Inderst, Roman; Sartzetakis, Eftichios S.; Xepapadeas, Anastasios
    Abstract: We analyze firms incentives to coordinate on the introduction of a more sustainable product variant when consumers preferences for greater sustainability depend on the perceived social norm, which in turn is shaped by average consumption behavior. Such preferences lead to multiple equilibria. If the more sustainable variant allows firms to sufficiently expand their aggregate market share, when a lenient legal regime makes this feasible they will coordinate on the more sustainable outcome. If their aggregate market share however does not expand sufficiently under the more sustainable variant, coordination can forestall a more sustainable outcome. Our analysis thus both confirms and qualifies the notion of a sustainability first-mover disadvantage as a justification for an agreement between competitors, which has gained traction in antitrust. We also provide empirical evidence for norm-based sustainability preferences.
    Keywords: Sustainability,Antitrust,Firm Cooperation
    Date: 2022
  10. By: Mathias Mier; Kais Siala; Kristina Govorukha; Philip Mayer
    Abstract: We conduct a hybrid scenario exercise to analyze decarbonization pathways of the European power market and related distributional effects across countries as well as between consumers and producers. Our CIB analysis reveals qualitative scenarios that differ in the level of political (stringency of climate policy) and physical collaboration (transmission grid expansion). We use a CGE model to quantify those scenarios for further usage in a power market model. Consumers generally experience considerably higher electricity prices, whereas producers observe higher rents. Electricity prices are lowest in the least collaborative future. Producer rents in turn are highest in the most collaborative one. Patterns hugely differ by country, making 13 countries to profiteers of the least collaborative future and 12 countries to profiteers of the most collaborative one. Only 3 countries profit from medium collaboration. Countries that profit from the most collaborative future experience substantially higher producer rents. Countries that profit from the least collaborative one in turn experience lowest electricity prices.
    Keywords: Hybrid scenario analysis, CIB method, CGE modeling, energy system modeling, power market modeling, collaboration, decarbonization, energy transition, distributional effects
    JEL: C61 Q40 Q41 Q52
    Date: 2022
  11. By: Langella, Monica; Manning, Alan
    Abstract: There has been increasing interest in recent years in monopsony in the labour market. This paper discusses how we can measure monopsony power by combining insights from models based on both frictions and idiosyncrasies. It presents some evidence from the United Kingdom and the United States about how monopsony power varies across the wage distribution within markets, over the business cycle and over time.
    Keywords: monopsony; labour market competition; 834455
    JEL: I21
    Date: 2021–12–01
  12. By: Ronen Gradwohl; Moshe Tennenholtz
    Abstract: We study the effects of data sharing between firms on prices, profits, and consumer welfare. Although indiscriminate sharing of consumer data decreases firm profits due to the subsequent increase in competition, selective sharing can be beneficial. We show that there are data-sharing mechanisms that are strictly Pareto-improving, simultaneously increasing firm profits and consumer welfare. Within the class of Pareto-improving mechanisms, we identify one that maximizes firm profits and one that maximizes consumer welfare.
    Date: 2022–05
  13. By: Luis E. GONZALES; ITO Koichiro; Mar REGUANT
    Abstract: Effective and economical expansion of renewable energy is one of the most urgent and important challenges in addressing climate change. However, many countries are facing a problem because existing network infrastructures (i.e., transmission networks) were not originally built to accommodate renewables, which creates disconnected networks between demand centers and renewable supply sources. In this paper, we study the static and dynamic impacts of market integration on renewable energy expansion. Our theory highlights that statically, market integration improves allocative efficiency through gains from trade, and dynamically, it incentivizes new entry of renewable power plants. Using two recent grid expansions in the Chilean electricity market, we empirically test our theoretical predictions and show that the commonly-used event study estimation underestimates the dynamic benefits if renewable investments occur in anticipation of market integration. We build a structural model of power plant entry and show how to correct for such bias. We find that market integration resulted in price convergence across regions, increases in renewable generation, and decreases in generation cost and emission of pollutants. Furthermore, a substantial amount of renewable entry would not have occurred in the absence of market integration. We show that ignoring this dynamic effect would substantially understate the benefits of transmission investments.
    Date: 2022–05
  14. By: Stephen K. Dimnwobi (NnamdiAzikiwe University Awka, Nigeria); Favour C. Onuoha (Abakaliki, Nigeria); Benedict I. Uzoechina (NnamdiAzikiwe University Awka, Nigeria); Chukwunonso Ekesiobi (Igbariam, Nigeria); Ebele S. Nwokoye (NnamdiAzikiwe University Awka, Nigeria)
    Abstract: Purpose - Given the ever-growing fiscal commitments of Nigeria and her chequered history of electricity generation and distribution, the fortunes of the energy sector in the country have been affected by the prevalence of energy poverty. Government policies such as public capital expenditure (PCE) present a crucial option for reducing energy poverty in Nigeria, providing the research impetus for this study. Design/methodology/approach -To investigate the relationship between government capital spending and five distinct energy poverty proxies, this research applies the Bayer-Hanck cointegration system and the Auto-Regressive Distributed Lag (ARDL) bound test. Findings -The findings indicate that public capital spending in Nigeria worsens energy poverty by reducing access to electricity, urban electrification, renewable energy consumption, and renewable electricity generation, with a positive but insignificant influence on rural electrification. Originality/value – This inquiry presents a pioneering investigation of the nexus between PCE and energy poverty in Nigeria. Also, aside from the variables of energy poverty adopted by existing studies, this study incorporates renewable energy consumption and renewable electricity output with implications for energy poverty and sustainable development.
    Keywords: Public Capital Expenditure, Energy Poverty, Electricity, Nigeria
    Date: 2022–01
  15. By: Lyndon Moore; Gertjan Verdickt
    Abstract: The Reconstruction Finance Corporation and Public Works Administration loaned 45 railroads over $802 million between 1932 and 1939. The government goal was to decrease the likelihood of bond defaults and increase employment. Bailed-out railroads did not increase profitability or employment. Instead, they reduced leverage. Bailing out a railroad had little effect on its stock price, but it resulted in an increase in its bond prices and reduced the likelihood of a ratings downgrade. However, bailouts did not help railroads avoid defaulting on their debt. We find some evidence that manufacturing firms located close to railroads benefited from the bailouts.
    Date: 2022–05
  16. By: Jonathan T. Hawkins-Pierot; Katherine R. H. Wagner
    Abstract: This paper studies the implications of energy prices today for energy efficiency and climate policy in the future. If adjustment costs mediate manufacturing plants’ responses to increases in energy prices, incumbents may be limited in their ability to re-optimize energy-inefficient production technologies chosen based on past market conditions. Using U.S. Census microdata and quasi-experimental variation in energy prices, we first show that the initial electricity prices that manufacturing plants pay in their first year of operations are important determinants of long-run energy intensity. Plants that open when the prices of electricity and fossil fuel inputs into electricity are low consume more energy throughout their lifetime, regardless of current electricity prices. We then estimate that the productivity of energy inputs is persistently lower for plants that open when electricity is cheap, and these differences in relative input productivities can fully explain the effects of entry-year electricity prices on subsequent energy intensity. We discuss how this “technology lock-in” increases the emissions costs of delayed action on carbon policy.
    Date: 2022
  17. By: Schmitt, Sefanie Y.; Bruckner, Dominik
    Abstract: We analyze firms' incentives to disclose deficiencies of their goods when consumers lack information. We distinguish two types of information: First, only some consumers are aware of the existence of deficiencies, which reduce the quality of the goods. Second, only some consumers have the expertise to infer the true levels of deficiencies once they are aware of the existence of deficiencies. We show that the interplay of awareness and expertise in a market affects firms' incentives to disclose. In particular, we demonstrate that more awareness and/or expertise in a market does not universally lead to more disclosure but depends on the level of competition in the market. Conversely, increasing competition does not always increase firms' incentives to disclose.
    Keywords: Awareness,Competition,Disclosure,Expertise,Product Quality
    JEL: D83 L15
    Date: 2022
  18. By: Jonas von Wangenheim
    Abstract: Customer data enables online marketplaces to identify buyers’ preferences and provide individualized product information. Buyers learn their product value only after contracting when the product is delivered. I characterize the impact of such ex-ante information on buyer surplus and seller surplus, when the seller sets prices and refund conditions in response to the ex-ante information. I show that efficient trade and an arbitrary split of the surplus can be achieved. For the buyer-optimal signal low-valuation buyers remain partially uninformed. Such a signal induces sellers to sell at low prices without refund options, resulting in commonly observed practices of opaque sales.
    Keywords: information disclosure, sequential screening, information design, strategic learning, Bayesian persuasion, mechanism design, platform economics, consumer protection
    JEL: D82 D86 D18
    Date: 2022–05

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