nep-reg New Economics Papers
on Regulation
Issue of 2022‒09‒26
thirteen papers chosen by
Christopher Decker
Oxford University

  1. The Steering Incentives of Gatekeepers in the Telecommunications Industry By Brian McManus; Aviv Nevo; Zachary Nolan; Jonathan W. Williams
  2. The governance of civil aviation authorities in Latin American countries: Evidence from ICAO’s North American, Central American and Caribbean and South American regions By Alexis Durand; Anna Pietikäinen
  3. Market Power of Digital Platforms By Jens-Uwe Franck; Martin Peitz
  4. Should Product-Specific Advertisement be Regulated in Pharmaceutical Markets? By Junichiro Ishida; Tsuyoshi Takahara
  5. A fundamental Game Theoretic model and approximate global Nash Equilibria computation for European Spot Power Markets By Ioan Alexandru Puiu; Raphael Andreas Hauser
  6. "Cartel destabilization effect of leniency programs". By Joan-Ramon Borrell; Carmen García; Juan Luis Jiménez; José Manuel Ordóñez-de-Haro
  7. Competition, Alignment, and Equilibria in Digital Marketplaces By Meena Jagadeesan; Michael I. Jordan; Nika Haghtalab
  8. Big Techs vs Banks By Leonardo Gambacorta; Fahad Khalil; Bruno Maria Parigi
  9. The Common Determinants of Legislative and Regulatory Complexity By Dana Foarta; Massimo Morelli
  10. Concentration in Product Markets By Benkard, C. Lanier; Yurukoglu, Ali; Zhang, Anthony Lee
  11. Does Environmental Policy Uncertainty Hinder Investments Towards a Low-Carbon Economy? By Joelle Noailly; Laura Nowzohour; Matthias van den Heuvel
  12. Amazon's Three Major Lines of Business By Snyder, Edward A.; Canaday, Jason; Hughes, Marley
  13. Compliance Costs of Regulations and Firm Productivity (Japanese) By MORIKAWA Masayuki

  1. By: Brian McManus; Aviv Nevo; Zachary Nolan; Jonathan W. Williams
    Abstract: We study trade-offs faced by multiple-system operators (MSOs), the gatekeepers in the provision of internet service, when setting prices and quality for internet access and TV service. In response to improvements in over-the-top video (OTT), MSOs choose between accommodating OTT to share in the surplus it provides consumers, or steering consumers towards TV. We augment the standard mixed bundling model to show that in some cases MSOs have incentives to steer consumers towards TV, but that these incentives vary with the available pricing tools. We then estimate the distribution of model parameters using household panel data on subscription choices and internet usage. Our estimates imply that if MSOs can set different prices for different internet content, under many cost circumstances MSOs discount the OTT usage price. Furthermore, we find that the ability to charge prices based on internet usage strengthens the MSOs' incentive to improve OTT quality.
    JEL: L11 L13 L96
    Date: 2022–08
  2. By: Alexis Durand (OECD); Anna Pietikäinen (OECD)
    Abstract: Good governance is a building block for the performance of regulators, including civil aviation authorities. This paper reports the results of a mapping of governance arrangements across 29 civil aviation authorities in Latin American and Caribbean countries, with the International Civil Aviation Organization’s South American and North American, Central American and Caribbean regions. Applying the methodology of the OECD Indicators on the Governance of Sector Regulators, the results provide a birds-eye view of the independence, accountability and scope of action of participating authorities. This paper explains the indicator methodology, summarises key data points, and presents high-level take aways.
    Keywords: accountability, better regulation, independence, Latin America, OECD, regulation, regulatory governance
    JEL: K23 L50 L93 L98 N46 D73
    Date: 2022–09–10
  3. By: Jens-Uwe Franck; Martin Peitz
    Abstract: Digital platforms have reshaped many product markets and play an increasingly important role in economies around the globe. Some of these platforms have become powerful players and may possess a lot of market power. Economists use a number of indicators to assess market power. In this article we discuss to which extent these indicators are helpful in the context of digital platforms. In particular, we focus on assessing entrenched market power and the role of potential competition to constrain this power. Finally, we discuss some cross-border issues of platform market power.
    Keywords: market power, digital platforms, Big Tech, potential competition, Brussels effect
    JEL: K21 L40 L13
    Date: 2022–08
  4. By: Junichiro Ishida; Tsuyoshi Takahara
    Abstract: This paper examines the optimal content regulation of DTCA by comparing two forms of DTCA---product-specific and category-specific---and identifies a key tradeoff which underlies this policy debate. Our analysis suggests that the optimal form of DTCA depends crucially on the cost effectiveness of DTCA and the market-size distortion induced by DTCA. When the cost of advertisement is high, there often exists a Pareto-improving policy choice: category-specific DTCA is preferred when the market-size distortion is more severe while produce DTCA is preferred when it is less so. As the cost decreases, however, a conflict emerges between pharmaceutical firms and patients: firms are worse off under product-specific DTCA while patients are better off. We also find that the physician's reluctance to persuade misinformed patients can actually alleviate the market-size distortion and hence be welfare-enhancing.
    Date: 2022–07
  5. By: Ioan Alexandru Puiu; Raphael Andreas Hauser
    Abstract: Spot electricity markets are considered under a Game-Theoretic framework, where risk averse players submit orders to the market clearing mechanism to maximise their own utility. Consistent with the current practice in Europe, the market clearing mechanism is modelled as a Social Welfare Maximisation problem, with zonal pricing, and we consider inflexible demand, physical constraints of the electricity grid, and capacity-constrained producers. A novel type of non-parametric risk aversion based on a defined worst case scenario is introduced, and this reduces the dimensionality of the strategy variables and ensures boundedness of prices. By leveraging these properties we devise Jacobi and Gauss-Seidel iterative schemes for computation of approximate global Nash Equilibria, which are in contrast to derivative based local equilibria. Our methodology is applied to the real world data of Central Western European (CWE) Spot Market during the 2019-2020 period, and offers a good representation of the historical time series of prices. By also solving for the assumption of truthful bidding, we devise a simple method based on hypothesis testing to infer if and when producers are bidding strategically (instead of truthfully), and we find evidence suggesting that strategic bidding may be fairly pronounced in the CWE region.
    Date: 2022–08
  6. By: Joan-Ramon Borrell (Universitat de Barcelona, Dep. d’Econometria, Estadística i Economia Aplicada- Institut d'Economia Aplicada (IREA) - Grup de Governs i Mercats (GiM), 1-11 John M. Keynes Street, Spain; and, University of Navarra, IESE Business School, Public-Private Sector Research Center.); Carmen García (Universidad de Las Palmas de Gran Canaria. Facultad de Economía, Empresa y Turismo. 35017. Las Palmas de Gran Canaria.); Juan Luis Jiménez (Universidad de Las Palmas de Gran Canaria. Facultad de Economía, Empresa y Turismo. Despacho D. 2-12. 35017. Las Palmas de Gran Canaria.); José Manuel Ordóñez-de-Haro (Universidad de Málaga, Dep. de Teoría e Historia Económica, Pl. El Ejido, s/n. 29013. Málaga.)
    Abstract: This paper investigates the theoretically and empirically unsettled question of the effect of the leniency programs on cartel duration, cartel fines and the length of the investigation. The fact that leniency programs were implemented in two different jurisdictions (EU and Spain) at different moments of time, and the exogeneity of the date of introduction, allow us to identify and quantify the effect of the programs on the outcomes using difference-in-difference program evaluation techniques. We empirically show that leniency programs destabilize existing cartels in the short run as expected from theory and previous empirical papers, and then dissuade the creation of new cartels in the long run. Deterrence effects dominate empirically in the long run, although theoretically they might not dominate, and previous empirical findings were inconclusive. Fines per firm increase substantially after the introduction of the leniency policy, despite whistleblowing firms are partially or totally exempted from fines. The duration of the investigation increases with the introduction of the leniency programs. Leniency programs have sharp and clear short-run cartel destabilization and long-run cartel dissuasion effects.
    Keywords: Antitrust, Competition Policy, Cartels, Leniency programs. JEL classification: D7, K2, L4, O4.
    Date: 2022–09
  7. By: Meena Jagadeesan; Michael I. Jordan; Nika Haghtalab
    Abstract: Competition between traditional platforms is known to improve user utility by aligning the platform's actions with user preferences. But to what extent is alignment exhibited in data-driven marketplaces? To study this question from a theoretical perspective, we introduce a duopoly market where platform actions are bandit algorithms and the two platforms compete for user participation. A salient feature of this market is that the quality of recommendations depends on both the bandit algorithm and the amount of data provided by interactions from users. This interdependency between the algorithm performance and the actions of users complicates the structure of market equilibria and their quality in terms of user utility. Our main finding is that competition in this market does not perfectly align market outcomes with user utility. Interestingly, market outcomes exhibit misalignment not only when the platforms have separate data repositories, but also when the platforms have a shared data repository. Nonetheless, the data sharing assumptions impact what mechanism drives misalignment and also affect the specific form of misalignment (e.g. the quality of the best-case and worst-case market outcomes). More broadly, our work illustrates that competition in digital marketplaces has subtle consequences for user utility that merit further investigation.
    Date: 2022–08
  8. By: Leonardo Gambacorta; Fahad Khalil; Bruno Maria Parigi
    Abstract: We study an economy in which large technology companies, big techs, provide credit to firms operating on their platforms. We focus on two advantages that big techs have with respect to banks: better information on their clients and better enforcement of credit repayment since big techs can exclude a defaulting firm from their ecosystem. While big techs have both superior enforcement and complete and private information of the firm type big techs can encroach on banks' turf only if they guarantee some privacy to firms by tempering their drive to collect information about firm characteristics and leaving some rents to them. The way big techs share information i.e. by providing information publicly or in a private way entails different outcomes in terms of efficiency.
    Keywords: big techs, credit markets, privacy, information sharing
    JEL: E51 G23 O31
    Date: 2022–08
  9. By: Dana Foarta; Massimo Morelli
    Abstract: Legislative and regulatory reforms often contain various forms of complexity – multiple contingencies, exemptions and alike. Complexity may be desirable if it better satisfies the needs of diverse political constituencies and if such a benefit is more important than the potential corresponding increase in implementation or administrative costs. Both benefits and costs are easier to evaluate for the reform drafter than for the other players involved in the reform process. This asymmetric information on the costs and benefits of complexity creates incentives for inefficient complexification of policies. We show that reform drafters use complexity to pander to persuade their political principals to adopt reforms, when the latter are less informed about the costs consequences of the proposed complexity. Nevertheless, institutional contexts where reform drafters are overseen by political principals are not always leading to greater complexity than in systems with a single decision maker who faces the same informational constraints regarding the costs and benefits of complexity.
    Keywords: Complex Reforms, Delegated Policymaking, Bureaucratic Implementation Costs, Political Pandering
    Date: 2022
  10. By: Benkard, C. Lanier; Yurukoglu, Ali; Zhang, Anthony Lee
    Abstract: This paper uses new data to reexamine trends in concentration in U.S. markets from 1994 to 2019. The paper's main contribution is to construct concentration measures that reflect narrowly defined consumption-based product markets, as would be defined in an antitrust setting, while accounting for cross-brand ownership, and to do so over a broad range of consumer goods and services. Our findings differ substantially from well established results using production data. We find that 42.2% of the industries in our sample are "highly concentrated" as defined by the U.S. Horizontal Merger Guidelines, which is much higher than previous results. Also in contrast with the previous literature, we find that product market concentration has been decreasing since 1994. This finding holds at the national level and also when product markets are defined locally in 29 state groups. We find increasing concentration once markets are aggregated to a broader sector level. We argue that these two diverging trends are best explained by a simple theoretical model based on Melitz and Ottaviano (2008), in which the costs of a firm supplying adjacent geographic or product markets falls over time, and efficient firms enter each others' home product markets.
    Keywords: Concentration,Product markets
    JEL: L11 L40 D43
    Date: 2021
  11. By: Joelle Noailly; Laura Nowzohour; Matthias van den Heuvel
    Abstract: We use machine learning algorithms to construct a novel news-based index of US environmental and climate policy uncertainty (EnvPU) available on a monthly basis over the 1990-2019 period. We find that our EnvPU index spikes during the environmental spending disputes of the 1995-1996 government shutdown, in the early 2010s due the failure of the national cap-and-trade climate bill and during the Trump presidency. We examine how elevated levels of environmental policy uncertainty relate to investments in the low-carbon economy. In firm-level estimations, we find that a rise in the EnvPU index is associated with a reduced probability for cleantech startups to receive venture capital (VC) funding. In financial markets, a rise in our EnvPU index is associated with higher stock volatility for firms with above-average green revenue shares. At the macro level, shocks in our index lead to declines in the number of cleantech VC deals and higher volatility of the main benchmark clean energy exchange-traded fund. Overall, our results are consistent with the notion that policy uncertainty has adverse effects on investments for the low-carbon economy.
    JEL: C55 D81 E22 Q58
    Date: 2022–08
  12. By: Snyder, Edward A.; Canaday, Jason; Hughes, Marley
    Abstract: Since its founding in 1995 Amazon has become a leader in eCommerce, cloud computing services, and interactive devices for individuals and homes. In this study, we document the critical steps in Amazon's development in each line of business. Our review yields insights on (i) how Amazon responded to changes in demand, (ii) the importance of economies of scale, economies of scope, and network effects in Amazon's efforts to build out its lines of business, and (iii) interrelationships among these three apparently distinct commercial operations. This case study thereby provides insights how Amazon's Firm Specific Advantages (FSAs) contributed to its successes within and across lines of business. Our analysis further suggests that Amazon developed Dynamic Capabilities (DCs) capabilities that contributed to Amazon's superior performance. Our analysis is, however, necessarily interim in nature. Given changing market and regulatory conditions, whether Amazon will be able to sustain its performance in which lines of business and in which countries is uncertain.
    Keywords: entrepreneurship and business strategy,transaction cost economics,market entry,market power,dynamic capabilities,firm specific advantages
    JEL: L26 L7 L86 M21
    Date: 2022
  13. By: MORIKAWA Masayuki
    Abstract: This study proposes a new method of measuring compliance costs of regulations by focusing on labor input and estimates the compliance costs in Japan based on a survey of workers. According to the results, the working hours required to comply with rules and regulations account for more than 20% of total labor input. By industry, this cost is higher in the finance and insurance industry, followed by the health and welfare industry, and by firm size, it is higher in large firms. A large proportion of the working hours of high-wage workers are devoted to these tasks. If these costs were halved, overall economic productivity would increase by about 8%. This suggests the importance of reducing costs through deregulation and digitalization.
    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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.