nep-reg New Economics Papers
on Regulation
Issue of 2022‒09‒19
thirteen papers chosen by
Christopher Decker
Oxford University

  1. Dynamic Price Competition: Theory and Evidence from Airline Markets By Ali Hortaçsu; Aniko Oery; Kevin R. Williams
  2. A legal-economic framework of electricity markets: Assessing Australia’s transition By Csereklyei, Zsuzsanna; Kallies, Anne
  3. Adjustment costs in dynamically optimal pricing of a network good By Dai ZUSAI
  4. Coordinating charging request allocation between self-interested navigation service platforms By Marianne Guillet; Maximilian Schiffer
  5. Platform pricing strategies when consumers web/showroom By Federico Navarra
  6. A Mixed Duopoly in Interbank Payment Services By Carlos A. Arango-Arango; Yanneth Rocio Betancourt-Garcia
  7. Does Voluntary Information Disclosure Lead to Less Cooperation than Mandatory Disclosure? Evidence from a Sequential Prisoner’s Dilemma Experiment By Georg Kirchsteiger; Tom Lenaerts; Remi Suchon
  8. Quantifying Economic Reasoning in Court: Judge Economics Sophistication and Pro-business Orientation By Cao, Siying
  9. Myerson on a Network By Rangeet Bhattacharyya; Palash Dey; Swaprava Nath
  10. Creating a Global Hydrogen Economy: Review of International Strategies, Targets, and Policies with a Focus on Japan, Germany, South Korea, and California By Vijayakumar, Vishnu; Fulton, Lewis; Shams, Mahdi; Sperling, Daniel
  11. Algorithmic Fairness and Statistical Discrimination By John W. Patty; Elizabeth Maggie Penn
  12. Exploring the consequences of greater price transparency on the dynamics of pharmaceutical markets By Eliana Barrenho; Ruth Lopert
  13. Measuring Preferences for Competition By Lina Lozano; Ernesto Reuben

  1. By: Ali Hortaçsu; Aniko Oery; Kevin R. Williams
    Abstract: We introduce a model of oligopoly dynamic pricing where firms with limited capacity face a sales deadline. We establish conditions under which the equilibrium is unique and converges to a system of differential equations. Using unique and comprehensive pricing and bookings data for competing U.S. airlines, we estimate our model and find that dynamic pricing results in higher output but lower welfare than under uniform pricing. Our theoretical and empirical findings run counter to standard results in single-firm settings due to the strategic role of competitor scarcity. Pricing heuristics commonly used by airlines increase welfare relative to estimated equilibrium predictions.
    JEL: C70 C73 D21 D22 D43 D60 L13 L93
    Date: 2022–08
  2. By: Csereklyei, Zsuzsanna; Kallies, Anne
    Abstract: Recent years have seen a surge in renewable generation investment in many countries, displacing traditional fossil-fuel generation at scale. The continuation of this clean energy transition is however threatened by outdated electricity market frameworks, which were not designed for large amounts of intermittent, zero-marginal cost generation. Clean energy transitions have amplified existing problems of liberalized wholesale markets and introduced new ones, including but not limited to maintaining system resilience and reliability and ensuring adequate future investment levels. Addressing these challenges will be central to a successful transition and requires a detailed understanding of the dynamic processes between electricity system objectives, legal frameworks, and market economics. We develop an integrated legal-economic model of electricity market design under transition conditions. The model proposes preferred pathways to proactively address major changes in electricity system objectives and the discrepancies between these objectives and market outcomes demonstrated on the example of Australia.
    Keywords: Electricity market economics, market frameworks, law and regulation
    JEL: K2 Q40 Q48
    Date: 2022
  3. By: Dai ZUSAI
    Abstract: In this note, we consider dynamically optimal pricing of a network good, when consumers' demand adjusts only gradually. We find a Lyapunov function that characterizes where and how the platform size converges under the dynamically optimal pricing. Given the current platform size, we compare the value of the Lyapunov function with the profit under static pricing that keeps this current size at a Nash equilibrium of consumers' entry game. We show that the difference between them can be interpreted as adjustment costs and we justify this interpretation by regarding a myopic pricing scheme as an approximation. This justification suggests that recurrent adjustment of the myopic pricing scheme brings the platform to the same size in the long run as the dynamically optimal pricing.
    Date: 2022–08
  4. By: Marianne Guillet; Maximilian Schiffer
    Abstract: Current electric vehicle market trends indicate an increasing adoption rate across several countries. To meet the expected growing charging demand, it is necessary to scale up the current charging infrastructure and to mitigate current reliability deficiencies, e.g., due to broken connectors or misreported charging station availability status. However, even within a properly dimensioned charging infrastructure, a risk for local bottlenecks remains if several drivers cannot coordinate their charging station visit decisions. Here, navigation service platforms can optimally balance charging demand over available stations to reduce possible station visit conflicts and increase user satisfaction. While such fleet-optimized charging station visit recommendations may alleviate local bottlenecks, they can also harm the system if self-interested navigation service platforms seek to maximize their own customers' satisfaction. To study these dynamics, we model fleet-optimized charging station allocation as a resource allocation game in which navigation platforms constitute players and assign potentially free charging stations to drivers. We show that no pure Nash equilibrium guarantee exists for this game, which motivates us to study VCG mechanisms both in offline and online settings, to coordinate players' strategies toward a better social outcome. Extensive numerical studies for the city of Berlin show that when coordinating players through VCG mechanisms, the social cost decreases on average by 42 % in the online setting and by 52 % in the offline setting.
    Date: 2022–08
  5. By: Federico Navarra (University of Padova)
    Abstract: This paper studies the effects of price parity clauses (PPC) on consumer surplus and platform profit by investigating the strategic interactions among horizontally differentiated multi-channel retailers selling through online platforms as well as in their the direct channel. Consumers first choose which product to buy and then in which channel (online/direct) to finalize the purchase; platforms can decide about whether or not to impose PPCs. We show that the direct sales channel constrains platform pricing strategies such that PPCs have ambiguous effects on consumers. From the social welfare perspective, imposing PPCs is desirable when platforms are perceived as highly substitutable. Both platforms imposing price parity is always a Nash equilibrium but under certain conditions it can also arise another Nash equilibrium in which both platforms select an unrestricted pricing regime.
    Keywords: platform competition, price parity clauses, vertical restraints, showrooming, webrooming
    JEL: D43 L13 L42
    Date: 2022–08
  6. By: Carlos A. Arango-Arango (Banco de la Republica de Colombia); Yanneth Rocio Betancourt-Garcia (Banco de la Republica de Colombia)
    Abstract: In this paper, we analyze theoretically the coexistence of two means of payment, such as cash and digital or electronic payments, introducing some distortions in the payments markets to understand the widespread use of cash, specially in emerging countries. Lagos and Wright (2005) theoretical approach allows us to model explicitly the frictions in the exchange process considering money as essential. We introduce in this framework theft and informality (measured by tax evasion) as factors aecting cash usage and competition with a private digital payment platform. Considering heterogeneity in the seller's side by assuming dierent levels of productivity we nd the factors that explain the use of cash or digital payments. If a public provider enters the market with a less expensive platform the fees charged by the private provider have to be adjusted to the cost level of the public platform, decreasing the use of cash in the economy.
    Keywords: Cash; means of payments; payments services; digital payments; instant payments
    JEL: E40 E41 E42 E44
    Date: 2022–08–15
  7. By: Georg Kirchsteiger; Tom Lenaerts; Remi Suchon
    Abstract: In sequential social dilemmas with stranger matching, initiating cooperation is inherently risky for the first mover. The disclosure of the second mover’s past actions may be necessary to instigate cooperation. We experimentally compare the effect of mandatory and voluntary disclosure with non disclosure in a sequential prisoner’s dilemma situation. Our results confirm the positive effects of disclosure on cooperation. We also find that voluntary disclosure is as effective as mandatory one, which is surprising given the results of existing literature on this topic. With voluntarydisclosure, second movers with a good track record decided to disclose because they expect that not disclosing signals non-cooperativeness. First movers interpret nondisclosure correctly as a signal of non-cooperativeness. Therefore, they cooperate less than half as often when the second mover does not disclose.
    Date: 2022–08
  8. By: Cao, Siying
    Abstract: By applying computational linguistics tools to the analysis of US federal district courts' decisions from 1932 to 2016, this paper quantifies the rise of economic reasoning in court cases that range from securities regulation to antitrust law. I then relate judges' level of economic reasoning to their training. I find that significant judge heterogeneity in economics sophistication can be explained by attendance at law schools that have a large presence of the law and economics faculty. Finally, for all regulatory cases from 1970 to 2016, I hand code whether the judge ruled in favor of the business or the government. I find that judge economics sophistication is positively correlated with a higher frequency of pro-business decisions even after controlling for political ideology and a rich set of other judge covariates.
    Keywords: law and economics,judicial decision making,text as data
    JEL: K0 L5 Z1
    Date: 2022
  9. By: Rangeet Bhattacharyya; Palash Dey; Swaprava Nath
    Abstract: The auction of a single indivisible item is one of the most celebrated problems in mechanism design with transfers. Despite its simplicity, it provides arguably the cleanest and most insightful results in the literature. When the information of the auction is available to every participant, Myerson [17] provided a seminal result to characterize the incentive-compatible auctions along with revenue optimality. However, such a result does not hold in an auction on a network, where the information of the auction is spread via the agents, and they need incentives to forward the information. In recent times, a few auctions (e.g., [10, 15]) were designed that appropriately incentivize the intermediate nodes on the network to promulgate the information to potentially more valuable bidders. In this paper, we provide a Myerson-like characterization of incentive-compatible auctions on a network and show that the currently known auctions fall within this larger class of randomized auctions. We obtain the structure of the revenue optimal auction for i.i.d. bidders on arbitrary trees. We discuss the possibilities of addressing more general settings. Through experiments, we show that auctions following this characterization can provide a higher revenue than the currently known auctions on networks.
    Date: 2022–08
  10. By: Vijayakumar, Vishnu; Fulton, Lewis; Shams, Mahdi; Sperling, Daniel
    Abstract: Motivated by increasing emphasis on decarbonization, hydrogen as an energy carrier is enjoying unprecedented political and business momentum. This paper reviews the status of hydrogen strategies and progress in major global economies, with a particular focus on four leading jurisdictions (Japan, Germany, S. Korea and California). These have been among the most aggressive, though in different ways. Japan, Germany, and S. Korea have been more focused on developing a sustainable hydrogen supply chain, while California has been more focused on spurring hydrogen demand, especially in the transportation sector. Japan’s strategy involves forging partnerships to import “blue” hydrogen (from methane with carbon abatement strategies) while Germany has focused on “green” (e.g., electrolytic) hydrogen production, along with plans to leverage its extensive natural gas pipelines for hydrogen distribution. Japan anticipates the power sector to be the largest consumer of hydrogen, while others expect the transportation and industry sectors to be the prime movers of future hydrogen demand. Japan, S. Korea and Germany will likely import a substantial portion of their future hydrogen supplies, while California has the potential for low-cost hydrogen production, but will need to establish demand and invest in hydrogen transportation and distribution infrastructure. In all four jurisdictions, investments are still relatively small and there exists huge opportunities for cooperation to develop a self-sustaining global hydrogen market.
    Keywords: Engineering, GHG emissions, sector coupling, blue hydrogen, green hydrogen, hydrogen economy
    Date: 2022–08–30
  11. By: John W. Patty; Elizabeth Maggie Penn
    Abstract: Algorithmic fairness is a new interdisciplinary field of study focused on how to measure whether a process, or algorithm, may unintentionally produce unfair outcomes, as well as whether or how the potential unfairness of such processes can be mitigated. Statistical discrimination describes a set of informational issues that can induce rational (i.e., Bayesian) decision-making to lead to unfair outcomes even in the absence of discriminatory intent. In this article, we provide overviews of these two related literatures and draw connections between them. The comparison illustrates both the conflict between rationality and fairness and the importance of endogeneity (e.g., "rational expectations" and "self-fulfilling prophecies") in defining and pursuing fairness. Taken in concert, we argue that the two traditions suggest a value for considering new fairness notions that explicitly account for how the individual characteristics an algorithm intends to measure may change in response to the algorithm.
    Date: 2022–08
  12. By: Eliana Barrenho (OECD); Ruth Lopert (OECD)
    Abstract: For some time, governments, stakeholders and civil society have been voicing the need for greater transparency in pharmaceutical pricing. The 2018 OECD report Pharmaceutical Innovation and Access to Medicines suggested that increased price transparency could promote public accountability, while potentially delivering efficiencies to health systems by including economic considerations in coverage, treatment decisions and budget allocation. Despite this, precisely what should be made more transparent, and how greater transparency would affect the functioning of markets, have been poorly characterised. To help frame the policy debate, the OECD undertook an exploration of the potential consequences of greater price transparency on market dynamics. The work included a roundtable and a series of semi-structured interviews, with participation by 19 experts in pharmaceutical pricing, economics of pharmaceutical markets, competition, and law. With an extensive review of the current practice and relevant literature as a preface, this report presents the key findings from those consultations.
    JEL: F6 L1 L2 I10
    Date: 2022–09–08
  13. By: Lina Lozano; Ernesto Reuben (Division of Social Science)
    Abstract: Recent research has found that competitive behavior measured in experiments strongly predicts individual differences in educational and labor market outcomes. However, there is no consensus on the underlying factors behind competitive behavior in these experiments. Are participants who compete more capable, more confident, and more tolerant of risk, or are they competing because they enjoy competition per se? In this study, we present an experiment designed to measure individuals’ preferences for competition. Compared to previous work, our experiment rules out risk preferences by design, measures beliefs more precisely, and allows us to measure the magnitude of preferences for competition. In addition, we collect multiple decisions per participant, which lets us evaluate the impact of noisy decision-making. We find strong evidence that many individuals possess preferences for competition. Most participants are either reliably competition-seeking or competition averse, and their choices are highly consistent with expected utility maximization. We also find that preferences for competition depend on the number of competitors but not on the participants’ gender.
    Date: 2022–08

This nep-reg issue is ©2022 by Christopher Decker. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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