nep-reg New Economics Papers
on Regulation
Issue of 2022‒10‒31
sixteen papers chosen by
Christopher Decker
Oxford University

  1. Competition and Quality: Evidence from the Entry of Mobile Network Service By Marc Bourreau; Yutec Sun
  2. Corrective regulation with imperfect instruments By Dávila, Eduardo; Walther, Ansgar
  3. Demand during peak hours versus peak-driving demand: Revisiting one size fits all dynamic grid tariffs By Philipp Andreas Gunkel; Claire-Marie Bergaentzl\'e; Dogan Keles; Fabian Scheller; Henrik Klinge Jacobsen
  4. Screening Adaptive Cartels By Juan Ortner; Sylvain Chassang; Jun Nakabayashi; Kei Kawai
  5. PayTech and the D(ata) N(etwork) A(ctivities) of BigTech Platforms By Jonathan Chiu; Thorsten V. Koeppl
  6. How to make the EU Energy Platform an effective emergency tool By Walter Boltz; Klaus-Dieter Borchardt; Thierry Deschuyteneer; Leigh Hancher; François Lévêque; Jean Pisani-Ferry; Ben McWilliams; Axel Ockenfels; Simone Tagliapietra; Georg Zachmann
  7. Location Divide in Digital Platforms? Evidence from a Natural Experiment By Lanfei Shi; Raveesh Mayya; Shun Ye
  8. News Media Bargaining Codes By Luca Sandrini; Robert Somogyi
  9. in brief... Confusopoly: how mobile phone companies use product complexity to raise prices By Christos Genakos; Tobias Kretschmer; Ambre Nicolle
  10. Decentralized Market Power in Credit Markets By Silva, Thiago; Souza, Sérgio; Guerra, Solange; Tabak, Benjamin
  11. Business Regulation in South Asia and the Belt and Road Initiative By World Bank
  12. The countervailing power hypothesis and contingent contracts By Noriaki Matsushima; Shohei Yoshida
  13. Compliance Costs of Regulations and Productivity By MORIKAWA Masayuki
  14. An Update on the Federal Reserve’s Efforts to Modernize the Payment System By Loretta J. Mester
  15. Rising Markups or Changing Technology? By Lucia Foster; John Haltiwanger; Cody Tuttle
  16. Digital financial services and open banking innovation: are banks becoming invisible? By Valeria Stefanelli; Francesco Manta; Pierluigi Toma

  1. By: Marc Bourreau (Telecom Paris, Department of Economics and Social Sciences, 19 place Marguerite Perey, 91120 Palaiseau, France); Yutec Sun (CREST-ENSAI, 51 Rue Blaise Pascal, 35170 Bruz, France)
    Abstract: We measure the impact of a new entry on quality supply and welfare in the French mobile service market, where the service providers compete on investing in network resources to meet fast-growing demand for mobile consumption. As network's quality is endogenous to strategic investments, it is unclear whether the entry led the market closer to the socially optimal level of quality supply and welfare. We develop a tractable approach to empirically analyze the dynamic oligopoly game of investment in the network resources in the market where consumers face substantial costs of switching among differentiated services. The counterfactual analysis finds that the quality may be oversupplied in oligopoly competition from the social welfare perspective, while the merger is predicted to yield undersupplied quality.
    Keywords: entry, quality, competition, investment, innovation
    JEL: L13 L43 L96
    Date: 2022–09
  2. By: Dávila, Eduardo; Walther, Ansgar
    Abstract: This paper studies optimal second-best corrective regulation, when some agents/activities cannot be perfectly regulated. We show that policy elasticities and Pigouvian wedges are sufficient statistics to characterize the marginal welfare impact of regulatory policies in a large class of environments. We show that a subset of policy elasticities, leakage elasticities, determine optimal second-best policy, and characterize the marginal value of relaxing regulatory constraints. We apply our results to scenarios with unregulated agents/activities, uniform regulation across agents/activities, and costly regulation. We illustrate our results in applications to financial regulation with environmental externalities, shadow banking, behavioral distortions, asset substitution, and fire sales. JEL Classification: H23, Q58, G28, D62
    Keywords: corrective regulation, environmental externalities, financial regulation, leakage elasticities, Pigouvian taxation, policy elasticities, regulatory arbitrage, second-best policy
    Date: 2022–09
  3. By: Philipp Andreas Gunkel (Energy Economics and System Analysis, DTU Management, Technical University of Denmark, 2800 Kongens Lyngby, Denmark); Claire-Marie Bergaentzl\'e (Energy Economics and System Analysis, DTU Management, Technical University of Denmark, 2800 Kongens Lyngby, Denmark); Dogan Keles (Energy Economics and System Analysis, DTU Management, Technical University of Denmark, 2800 Kongens Lyngby, Denmark); Fabian Scheller (Energy Economics and System Analysis, DTU Management, Technical University of Denmark, 2800 Kongens Lyngby, Denmark; Faculty of Business and Engineering, University of Applied Sciences Wurzburg-Schweinfurt, Ignaz-Schon-Street 11, 97421 Schweinfurt, Germany); Henrik Klinge Jacobsen (Energy Economics and System Analysis, DTU Management, Technical University of Denmark, 2800 Kongens Lyngby, Denmark)
    Abstract: Electricity grid tariffs should reflect network costs in order to provide efficient incentives for timing electricity use and investment in new technologies. We compare tariff designs that deal with existing and expected future grid congestion. Although common volumetric tariff designs such as Time-Of-Use are partly cost-reflective, their designs have fundamental drawbacks in terms of the principles of cost allocations and potentially may lead to social disparities. In a case study of 1.56 million Danish households divided into 90 socio-techno-economic categories, we compare three alternative grid tariffs and investigate their impact on annual electricity bills. This study shows that penalizing consumption above a certain threshold leads to higher costs for owners of electric vehicles regardless of the timing of their consumption. In contrast, penalizing consumption during system peaks mainly affects the electricity bills of heat pump owners. The results of our design simultaneously applying a time-dependent threshold and a system peak tariff show (a) a range of different allocations that distribute the burden of additional grid costs across both technologies and (b) strong positive outcomes, including reduced expenses for lower-income groups and smaller households. Our study offers policymakers a menu that assigns grid costs to demand technologies, thereby giving them valuable input.
    Date: 2022–10
  4. By: Juan Ortner (Boston University); Sylvain Chassang (New York University); Jun Nakabayashi (Kindai University); Kei Kawai (U.C. Berkeley)
    Abstract: We propose an equilibrium theory of data-driven antitrust oversight in which regulators launch investigations on the basis of suspicious bidding patterns and cartels can adapt to the statistical screens used by regulators. We emphasize the use of asymptotically safe tests, i.e. tests that are passed with probability approaching one by competitive firms, regardless of the underlying economic environment. Our main result establishes that screening for collusion with safe tests is a robust improvement over laissez-faire. Safe tests do not create new collusive equilibria, and do not hurt competitive industries. In addition, safe tests can have strict bite, including unraveling all collusive equilibria in some settings. We provide evidence that cartel adaptation to regulatory oversight is a real concern.
    Keywords: collusion, auctions, procurement, antitrust
    JEL: D44 D43
  5. By: Jonathan Chiu (Bank of Canada); Thorsten V. Koeppl
    Abstract: Why do BigTech platforms introduce payment services? Digital platforms often run business models where activities on the platform generate data that can be monetized off the platform. There is a trade-o between the value of such data and the privacy concerns of users, since platforms need to compensate users for their privacy loss by subsidizing activities. The nature of complementarities between data and payments determines the introduction of payments. When data help to provide better payments (data-driven payments), platforms have too little incentives to adopt. When payments generate additional data (payments-driven data), platforms may adopt payments inefficiently.
    Keywords: BigTech, Payments, Privacy, Digital Platform, Data
    JEL: D8 E42 L1
    Date: 2022–05
  6. By: Walter Boltz; Klaus-Dieter Borchardt; Thierry Deschuyteneer; Leigh Hancher; François Lévêque; Jean Pisani-Ferry; Ben McWilliams; Axel Ockenfels; Simone Tagliapietra; Georg Zachmann
    Abstract: The platform could become an effective emergency tool to safeguard Europe’s gas supply, but policymakers need to address challenges to make it work.
    Date: 2022–06
  7. By: Lanfei Shi (McIntire School of Commerce, University of Virginia, Charlottesville, Virginia, United States 22903); Raveesh Mayya (Leonard N. Stern School of Business, New York University, New York, New York, United States 10012); Shun Ye (School of Business, George Mason University, Fairfax, Virginia, United States 22030)
    Abstract: With the rise of international e-commerce, geolocation boundaries seem to have become blurred and less relevant. Yet, emerging evidence has shown that consumers tend to exhibit location preferences in choosing sellers (e.g., U.S. consumers may prefer products made domestically). While the important role of salient information signals such as price and product ratings has been recognized, our study seeks to examine a less investigated information signal—the seller’s location. We ask whether and how the disclosure of seller location affects the product sales and pricing strategies of international sellers as compared to domestic sellers. We identify such effects by leveraging an exogenous policy change on Amazon that mandated all sellers to disclose their business locations. We further exploit the difference between the announcement of the policy change and its actual implementation to examine potential forward-looking responses from sellers upon the policy announcement. Our analyses reveal that, upon public announcement of the policy, international sellers proactively adjust their pricing strategies ahead of the policy implementation, leading to sales improvement. However, we observe a sales reversal effect upon the policy implementation—disclosing seller location not only cancels the gain from aggressive pricing for international sellers but also exacerbates their sales gap from their domestic counterparts. Such a home bias, which we find to be behavioral bias, creates a competitive disadvantage for international sellers, leading to a location divide on the global platform that may stifle cross-side network effects on the platform. Our findings shed light on the unintended consequences of information disclosure and provide valuable implications for managing global e-commerce platforms.
    Keywords: seller location disclosure; policy change; home bias; e-commerce; digital platforms; information signals; unintended consequence
    JEL: L14 L43 D82
    Date: 2022–09
  8. By: Luca Sandrini (Research Center of Quantitative Social and Management Sciences, Faculty of Economics and Social Sciences, Budapest University of Technology and Economics, Műegyetem rkp. 3., H-1111 Budapest, Hungary.); Robert Somogyi (Budapest University of Technology and Economics, and Centre for Economic and Regional Studies, Műegyetem rkp. 3., H-1111 Budapest, Hungary.)
    Abstract: In this paper, we build a model of the news market where advertisers choose to allocate their ads between a social media platform and a news website that is the content creator. Our main objective is to evaluate a policy intervention that aims to foster news creation by transferring revenues from social media to news websites. Such interventions, commonly referred to as news media bargaining codes were first introduced in Australia in 2021 and are being implemented worldwide. We build on a novel trade-off between the higher advertising efficiency of social media and the value of content creation by news websites. When news quality is unaffected by the policy, we find that the equilibrium level of news creation may be socially sub-optimal. Moreover, we show that the policy intervention mandated by the bargaining code is always welfare-increasing. When news quality is endogenous, we nuance our results by showing that a poorly designed transfer can be inefficient. However, it still holds that the policy never harms consumers. Finally, we also provide some guidance on how to design the policy.
    Keywords: social media; news website; bargaining code; platform regulation
    JEL: D43 L13 L51 L82
    Date: 2022–09
  9. By: Christos Genakos; Tobias Kretschmer; Ambre Nicolle
    Abstract: Confusing consumers can be profitable for companies, particularly in a highly competitive market. Christos Genakos, Tobias Kretschmer and Ambre Nicolle find evidence that, for a period, phone operators decreased the transparency of their mobile plans, creating confusion among users and, at the same time, pushing up prices.
    Keywords: competitive strategy, obfuscation, mobile telecommunications industry
    Date: 2022–06–21
  10. By: Silva, Thiago; Souza, Sérgio; Guerra, Solange; Tabak, Benjamin
    Abstract: The literature measures a bank's market power using aggregated data at the bank level. However, market power may be exercised in a decentralized way by each bank branch and for specific banking products. This article proposes a novel methodology for estimating a bank's market power at the branch level in each locality and for each banking product. We find significant heterogeneity in banks' market power by locality and product, even within the same bank. Our results suggest that aggregate measures of bank market power may be misleading and distorted. Accurate quantification of market power requires fine-grained measures, which are essential for enhancing financial regulation and competition.
    Keywords: market power, Lerner index, competition, credit market, COVID-19
    JEL: C51 G20 G21 L11
    Date: 2022–09–27
  11. By: World Bank
    Keywords: Public Sector Development - Regulatory Regimes Infrastructure Economics and Finance - Infrastructure Regulation International Economics and Trade - Trade and Regional Integration Private Sector Development - Legal Regulation and Business Environment Private Sector Development - Private Sector Economics Transport - Roads & Highways
    Date: 2020–11
  12. By: Noriaki Matsushima; Shohei Yoshida
    Abstract: We consider a downstream oligopoly model with one dominant and several fringe retailers who purchase a manufacturing product from a monopoly supplier. We examine how contract type influences the relationship between the dominant retailer's bargaining power and the equilibrium retail price. If the contracts between the supplier and fringe retailers are contingent on the bargaining outcome between the supplier and the dominant retailer, the bargaining power does not affect the retail price. In contrast, if contracts with fringe retailers are not contingent, the relationship between bargaining power and retail price can be either positive or negative.
    Date: 2022–10
  13. By: MORIKAWA Masayuki
    Abstract: This study proposes a new approach of measuring the compliance costs of rules and regulations by focusing on labor input and estimating compliance costs based on a survey of workers in Japan. According to the results, the working hours required to comply with the rules and regulations account for over 20% of the total labor input. This cost is higher in the finance and insurance industry, followed by health and welfare; moreover, it is higher in large firms. A large proportion of the working hours of high-wage workers are devoted to compliance tasks. If these costs were halved, overall economic productivity would increase by approximately 8%. This suggests the importance of reducing costs through deregulation and digitalization.
    Date: 2022–09
  14. By: Loretta J. Mester
    Abstract: This morning, I will discuss some efforts the Federal Reserve has underway, in collaboration with the industry and other payments stakeholders, to modernize the payment system, a critical part of the infrastructure in the U.S. Of course, the views I present will be my own and not necessarily those of the Federal Reserve System or of my colleagues on the Federal Open Market Committee (FOMC).
    Date: 2022–10–04
  15. By: Lucia Foster; John Haltiwanger; Cody Tuttle
    Abstract: Recent evidence suggests the U.S. business environment is changing, with rising market concentration and markups. The most prominent and extensive evidence backs out firm-level markups from the first-order conditions for variable factors. The markup is identified as the ratio of the variable factor’s output elasticity to its cost share of revenue. Our analysis starts from this indirect approach, but we exploit a long panel of manufacturing establishments to permit output elasticities to vary to a much greater extent - relative to the existing literature - across establishments within the same industry over time. With our more detailed estimates of output elasticities, the measured increase in markups is substantially dampened, if not eliminated, for U.S. manufacturing. As supporting evidence, we relate differences in the markups’ patterns to observable changes in technology (e.g., computer investment per worker, capital intensity, diversification to non-manufacturing), and we find patterns in support of changing technology as the driver of those differences.
    Date: 2022–09
  16. By: Valeria Stefanelli; Francesco Manta; Pierluigi Toma
    Abstract: Digitalization in many economic sectors drove the financial system to adapt to new paradigms of technological transformation. Moreover, the extant regulatory framework forced the financial system to reconsider its business models and its relationship with the market. Such reasons generated also in the banking sector a new model of competition within the ecosystem never seen before in this sector. The new ecosystem of banks and financial institutions lacks a common framework that not only synthesizes the development lines of open innovation in the banking sector, but also regarding the planification of strategic choices and organisation within the new ecosystems. The present study aims to inquire the strategic positioning of European banks toward their digital transformation strategies, by analysing the decision-making processes that occurred between 2015 and 2019. A qualitative analysis on partnerships and the adoption of Application Programming Interfaces (APIs) development in support of new service models was carried out. Results have relevant policy implications for regulators, linked to the business evolution and the risks of outsourcing, and managerial implications for the followers, specifically on the plan of service integration to diversify and boost their activities in the segment of customer relationship management and care, providing a better user experience.
    Date: 2022–10

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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