nep-reg New Economics Papers
on Regulation
Issue of 2023‒02‒06
sixteen papers chosen by
Christopher Decker
Oxford University

  1. Multiproduct Cost Passthrough: Edgeworth's Paradox Revisited By armstrong, mark; Vickers, John
  2. Protecting Sticky Consumers in Essential Markets By Walter Beckert; Paolo Siciliani
  3. Fuel poverty in Queensland: horizontal and vertical impacts of the 2022 energy crisis By Simshauser, P.
  4. The sunshine state: implications from mass rooftop solar PV take-up rates in Queensland By Simshauser, P.; Nelson, T.; Gilmore, J.
  5. Man vs. Machine: Technological Promise and Political Limits of Automated Regulation Enforcement By Oliver Browne; Ludovica Gazze; Michael Greenstone; Olga Rostapshova
  6. How effective has the electricity social rate been in reducing energy poverty in Spain? By Lisa Bagnoli; Salvador Bertoméu-Sánchez
  7. Real-Time Pricing and the Cost of Clean Power By Imelda; Mathias Fripp; Michael J. Roberts
  8. Implications of the New Brandeisian for Japanese Competition Policy: The consumer welfare standard and the market power standard (Japanese) By KAWAHAMA Noboru
  9. Joint procurement by heterogeneous buyers By Isabel Helmrath; Matthias Hunold; Johannes Muthers
  10. Frequency markets and the problem of pre-dictability By Hameed, Z.; Pollitt, M.; Kattuman, P.; Træholt, C.
  11. Financial inclusion, mobile money and regulatory architecture By Metzger, Martina; Were, Maureen; Pédussel Wu, Jennifer
  12. The Dynamic Impacts of Pricing Groundwater By Bruno, Ellen M.; Jessoe, Katrina K.; Hanemann, Michael
  13. Suspecting Collusion By Ceesay, Muhammed
  14. Monopsony, Job Tasks, and Labor Market Concentration By Samuel Dodini; Michael F. Lovenheim; Kjell G. Salvanes; Alexander Willén
  15. Marktdesign für die Gasmangellage By Axel Ockenfels
  16. The Impact of Privatization: Evidence from the Hospital Sector By Mark Duggan; Atul Gupta; Emilie Jackson; Zachary S. Templeton

  1. By: armstrong, mark; Vickers, John
    Abstract: Edgeworth's paradox of taxation occurs when an increase in the unit cost of a product causes a multiproduct monopolist to reduce prices. We give simple illustrations of the paradox, including how it can arise with uniform pricing. We then give a general analysis of the case of linear marginal cost and demand conditions, and characterize which matrices of cost passthrough terms are consistent with profit maximization. When the firm supplies at least one pair of substitute products we show how Edgeworth's paradox always occurs with a suitable choice of cost function. We then establish a connection between Ramsey pricing and the paradox in a form relating to consumer surplus, and use it to find further examples where consumer surplus increases with cost.
    Keywords: Multiproduct pricing; Edgeworth's paradox of taxation; cost passthrough; Ramsey pricing
    JEL: D42 H22 L12
    Date: 2023–01
  2. By: Walter Beckert (Birkbeck, University of London); Paolo Siciliani (Bank of England)
    Abstract: This paper studies regulatory policy interventions that are aimed at protecting sticky consumers who are exposed to the risk of being taken advantage of. We model heterogeneous consumer switching costs alongside asymmetric market shares. This setting encompasses many markets in which established firms are challenged by new entrants. We identify circumstances under which such interventions can be counterproductive: with regard to the stated consumer protection objective and also with regard to the complementary aim to promote competition.
    Keywords: switching costs, price discrimination, uniform pricing, most-favoured customer clauses, price regulation, competition
    JEL: L11 L13 D4
    Date: 2022–07
  3. By: Simshauser, P.
    Abstract: In 2022, wholesale prices in Australia’s National Electricity Market (NEM) rose to $225/MWh, up from $75/MWh a year earlier. The war in Ukraine led to a global tightening of coal and gas markets, and the effects were felt acutely by the NEM’s marginal coal- and gas-fired plants given tight links to seaborne prices. Household electricity tariffs are set for the financial year ahead but the wholesale cost element is built-up over the preceding three-year period, in line with forward hedging practices of prudent energy retailers. Consequently, households have been shielded from 2022 spot market dynamics in 2021/22 tariff determinations. However, by 2023/24 the impacts of wholesale price rises will be impounded into retail tariffs. In this article, fuel poverty in the Queensland region of the NEM is examined over three distinct periods, 2015/16, 2021/22 and 2023/24. These periods coincide with high (2015/16), low (2021/22) and expected high (2023/24) residential electricity tariffs. Results reveal an underlying level of fuel poverty in Queensland at 8.1% of households in 2015/16, falling to 6.8% in 2021/22 and rising to at least 10.0% in 2023/24. Queensland’s hardship policy unwinds these results by 1.6, 1.1 and 2.9 percentage points, respectively. 2023/24 tariff increases overwhelm existing hardship policy settings although policy performance operates as an automatic stabiliser, rising in effectiveness as price rises.
    Keywords: Fuel poverty, policy targeting efficiency, electricity prices.
    JEL: D4 L5 L9 Q4
    Date: 2023–01–12
  4. By: Simshauser, P.; Nelson, T.; Gilmore, J.
    Abstract: One of the most pronounced trends in Australian electricity markets over the past decade has been the rapid take-up rate of rooftop solar PV by households. In this article, we analyse the cause and effects of rooftop solar PV in the NEM’s Queensland region, which has the highest household take-up rate in the world. Initially sparked by a combination of sharply rising electricity tariffs and over-lapping rooftop PV subsidies, economic considerations soon took over. More than 43% of households have a behind-the-meter solar unit. Benefits to participating households are significant, while hidden costs remain for non-participants. Impacts on utilities are mixed, with retail supply businesses most adversely affected. Rooftop PV has displaced ~1500MW of base and peaking plant, equating to ~$3bn investment. Yet despite world-leading rates of rooftop solar, Queensland’s grid-supplied system peak demand continues to rise, albeit shifted to later in the evening.
    Keywords: rooftop solar PV, electricity utilities
    JEL: D25 D80 G32 L51 Q41
    Date: 2023–01–12
  5. By: Oliver Browne; Ludovica Gazze; Michael Greenstone; Olga Rostapshova
    Abstract: New technologies allow perfect detection of environmental violations at near-zero marginal cost, but take-up is low. We conducted a field experiment to evaluate enforcement of water conservation rules with smart meters in Fresno, CA. Households were randomly assigned combinations of enforcement method (automated or in-person inspections) and fines. Automated enforcement increased households’ punishment rates from 0.1 to 14%, decreased summer water use by 3%, and reduced violations by 17%, while higher fine levels had little effect. However, automated enforcement also increased customer complaints by 1, 102%, ultimately causing its cancellation and highlighting that political considerations limit technological solutions to enforcement challenges.
    JEL: K42 Q25
    Date: 2023–01
  6. By: Lisa Bagnoli; Salvador Bertoméu-Sánchez
    Abstract: This paper analyzes the effectiveness of the electricity social rate, the Bono Social de Electricidad, introduced in 2009 in Spain’s electricity market. It is a policy aimed at increasing the affordability of electricity by entailing a discount on prices for vulnerable consumers. Using data from the family budget surveys from 2006 to 2017, we rely on a difference-in-differences approach to measure its causal impact on energy poverty and to further analyze how the introduction of this measure affected the consumption behavior of households. We find that, on average, the introduction of the policy has reduced the likelihood of energy poverty of households eligible for the social rate. Nevertheless, the magnitude of the effect is quite modest as it corresponds in practice to only 59, 000 households that are no longer in energy poverty as a result of the measure. We further show that, in reaction to lower effective prices, households do not increase their consumption of electricity. In other words, the increased affordability did not induce a change in the consumption behavior in terms of quantity purchased but it entirely resulted in a decrease in electricity expenditure.
    Keywords: Electricity; Energy poverty; Policy evaluation; Social rate
    Date: 2022–01–07
  7. By: Imelda (Graduate Institute of International and Development Studies (IHEID)); Mathias Fripp (University of Hawai’i at M¯anoa, University of Hawai’i Economic Research Organization and Renewable Energy and Island Sustainability group); Michael J. Roberts (Department of Economics, University of Hawai’i Economic Research Organization, and Sea Grant College Program)
    Abstract: Solar and wind power are now cheaper than fossil fuels but are intermittent. The extra supply-side variability implies growing benefits of using real-time retail pricing (RTP). We evaluate the potential gains of RTP using a model that jointly solves investment, supply, storage, and demand to obtain a chronologically detailed dynamic equilibrium for the island of Oahu, Hawai’i. We find that RTP reduces costs in high-renewable systems by roughly 6 to 12 times as much as in fossil systems holding demand assumptions fixed, markedly lowering the cost of clean energy integration.
    Keywords: Renewable energy, real-time pricing, storage, demand response, optimization
    JEL: Q41 Q42 Q53
    Date: 2022–08
  8. By: KAWAHAMA Noboru
    Abstract: Concerns about the concentration of economic power in digital platforms have transformed the framework of the debate over competition law (including related areas) over the past few years. One of the driving forces behind this change has been the rise of a position in the United States known as the neo-Brandeis movement. While there has been much praise and criticism of this position, it is hard to deny that it has already become a driving force for regulation. While this position began within academia, it also has an aspect of activism, making it difficult to organize the debate. At first glance, the "consumer welfare standard" seems self-explanatory, but its usage in the U.S. is quite unique. In Europe and Japan, "consumer welfare standards" have never been dominant in the U.S. sense, nor have "consumer welfare" standards been technically a regulatory standard under Japanese law in the Antimonopoly Law. However, we have adopted a market power standard that is similar in content to the consumer welfare standard, which is generally responsive to the criticisms of the neo-Brandeisan position. On the other hand, it can be pointed out that Japan's market dominance standard differs in the absence of monopoly power regulation. Although the neo-Brandeisian position has been propagated in Japan, it is difficult to accurately evaluate it without an understanding of the differences between Japan and the U.S. with respect to the "consumer welfare standard" and the "market power standard†. While there are few arguments in favor of the neo-Brandeisian position in its entirety, it is an obstacle to understanding the current situation in which arguments that follow a similar logic are gaining ground in popularity in many respects. This DP aims to clarify the implications of the new Brandeis movement for Japan's competition policy by elucidating the problems with the "consumer welfare standard" and the significance of the "market power standard" in the United States.
    Date: 2023–01
  9. By: Isabel Helmrath (University of Siegen); Matthias Hunold; Johannes Muthers
    Abstract: We analyze self- and joint procurement of countries with heterogeneous demand for a good offered by a price discriminating monopolist. We find that not only countries with low but also with high demand can benefit from committing to jointly procure equal quantities at a uniform price, even if the supplier is capacity constrained. Free-riding of outside buyers as well as too much heterogeneity of insiders make the buyer group unstable. Uniform price procurement without a quantity restriction is only stable with intra-group transfers. We relate our findings to the COVID-19 vaccine procurement of the European Union.
    Keywords: joint procurement, group purchase, heterogeneous buyer group, vaccine procurement, price discrimination
    JEL: C79 D42 L12
    Date: 2022–11
  10. By: Hameed, Z.; Pollitt, M.; Kattuman, P.; Træholt, C.
    Abstract: Ancillary services markets (ASMs) are gaining higher importance in renewable-based power systems. They, however, remain less explored than the energy markets (EMs) of different regions. For limited energy units, such as battery energy storage systems (BESSs), it is vital to investigate the relative predictability of the two markets as suitable bidding hours of a less predictable product are more challenging to identify, thus entailing less certain revenues. This paper develops forecast models of the two markets of three Nordic countries – Denmark, Finland, and Norway – to quantify the difference in their predictability. Frequency containment normal reserves (FCR-N) are considered as a case of the Nordic ancillary service product. The dataset of 315648 datapoints contains three years (2019 – 2021) of their hourly FCR-N, and spot market revenues. Generalized additive models (GAMs) are used to develop week-ahead forecasts using smooth curves of hourly and daily patterns. The forecast allows both inter country – between same markets of different countries – and intra country – between different markets of the same country – comparison. The results show that the FCR-N markets of the Nordic countries are less predictable than their respective spot markets except for the case of Denmark due to its fixed hourly volumes. Moreover, the smoothing curves of FCR-N forecast models differ for each Nordic country despite their similar market requirements. This is in contrast to the Nordic spot markets where the smoothing curves indicate similarity in inter-country mar-ket behaviors. Considering market predictability differences in addition to their hourly prices is thus vital for BESS units performing multi-market bidding.
    Keywords: Ancillary services, Spot markets, Forecast, Battery energy storage
    Date: 2023–01–12
  11. By: Metzger, Martina; Were, Maureen; Pédussel Wu, Jennifer
    Abstract: This paper discusses first the role of mobile money accounts to enhance financial inclusion towards vulnerable groups in developing countries in the light of recent empirical evidence. Second, we explore the role of regulation to address risks to consumers and the financial system arising from the use of mobile money accounts, a question which has not been thoroughly addressed in the literature. Although financial inclusion via mobile money accounts is increasing, the outreach to particular disadvantaged and poor groups is still limited. However, remittances and G2P payments might develop into game changers for financial inclusion of poor and vulnerable households. Many countries from Sub-Saharan Africa are outperformers in terms of use of mobile money accounts in comparison to developing countries in other regions. Strikingly, the empirical evidence suggests that the regulatory landscape was of strategic importance to unleash the developmental potential of mobile money networks and the crowding-in of formerly unbanked households. Regulation on consumer protection particularly is of strategic relevance for the lasting acceptance and smooth operation of mobile money services and sharing the benefits with disadvantaged and poor households. A lack of effective and convincing consumer safeguards in place could diminish the trust in mobile money services and subsequently their acceptance and use. As mobile money services involve similar risks as traditional banking services, similar rules should apply. In addition, there are risks arising from the particular technology for mobile money account holders and institutions of the financial sector, including DFS providers. To these risks belong hysteresis effects to the disadvantage of poor households due to the use of alternative data and biased algorithms as well as displacement effects in local traditional and digital financial services due to BigTech.
    Keywords: Mobile money, financial inclusion, regulation, consumer protection, digital financial services, Big Data, Sub-Saharan Africa
    JEL: D18 G18 G23 G51 G59
    Date: 2022
  12. By: Bruno, Ellen M.; Jessoe, Katrina K.; Hanemann, Michael
    Abstract: This paper evaluates own-price dynamics in taxing environmental externalities. We exploit a natural experiment that exposed some firms to a large and persistent price increase for groundwater, a setting characterized by incomplete markets. Using five years of post-treatment data on farm-level water use, we find that water conservation doubles between the first and fifth year of the tax. Failure to account for dynamics in policies designed to manage groundwater will mischaracterize the price elasticity of demand and introduce efficiency costs.
    Keywords: Social and Behavioral Sciences, environmental regulation, market-based approaches, groundwater, agriculture, dynamic effects
    Date: 2023–01–20
  13. By: Ceesay, Muhammed
    Abstract: How much does it hurt seller revenue if some bidders know that others are colluding? Using a simple model of first and second price Independent Private Value auctions with uniformly distributed values where a single bidder knows privately of the existence of collusion by others, we show that this knowledge leads him to bid shading (weakly) in the first price auction compared to what he would have bid otherwise. This in turn yields the result that the second price auction dominates the first price auction in terms of seller revenue. This contrasts results from the literature showing that under our framework, when bidding is done while the presence of colluding bidders is common knowledge, the first price auction dominates the second price auction.
    Keywords: Almost-All-Inclusive Ring, Informational Structures
    JEL: D44
    Date: 2023
  14. By: Samuel Dodini; Michael F. Lovenheim; Kjell G. Salvanes; Alexander Willén
    Abstract: This paper extends the literature on monopsony and labor market concentration by taking a task-based approach and estimating the causal effect of concentration in the demand for skills on labor market outcomes. The prior literature has focused on industry and occupation concentration and likely overstates the degree of monopsony power, since worker skills are substitutable across different firms, occupations, and industries. Exploiting linked employer-employee data that cover the universe of Norwegian workers over time, we find that our job task-based measure shows lower degrees of concentration than the conventional industry-and occupation-based measures. We also find that the gender gap in concentration is substantially larger using this measure. Exploiting mass layoffs and establishment closures as exogenous shocks to local labor demand, we show that workers who experience a mass separation have substantially worse subsequent labor market outcomes when they are in more concentrated labor markets defined by skill clusters. Our results point to the existence of employer market power in the economy that is driven by the concentration of skill demand across firms.
    JEL: J23 J24 J42 J63
    Date: 2023–01
  15. By: Axel Ockenfels (University of Cologne)
    Abstract: Bisher ist unklar, wer wie viel Gas zu welchem Preis in einer Mangellage in Deutschland bekommt, wenn der Regulierer rationieren muss. Dies droht die Anreize in und im Vorfeld einer Mangellage zu verwässern. In diesem Beitrag wird die potenziell hilfreiche Rolle eines Zertifi katsmarktes für die Allokation und Bepreisung in der Mangellage in den Blick genommen.
    Date: 2022–11
  16. By: Mark Duggan; Atul Gupta; Emilie Jackson; Zachary S. Templeton
    Abstract: Privatization has been shown to increase growth and profitability of public firms. However, effects on consumers are understudied. We study potential trade-offs in the US hospital sector where public control declined by 42% over 1983–2019. Private operators may improve hospitals’ financial performance, but a focus on profitability may adversely affect access to care for certain patients. Using national data across all hospitals and patients, we study 258 hospital privatizations over the 2000–2018 period. Private operators improve profitability so that hospitals generate a modest surplus, primarily by increasing mean revenue per patient. However, this is partly achieved by differentially reducing the intake of low-income Medicaid patients, who are typically less profitable than other groups due to lower reimbursement rates. While other patients appear to be absorbed by neighboring hospitals, Medicaid patients experience an aggregate decline in utilization at the market-level, which we interpret as a decline in access to care. Hospital privatization therefore partially offsets the benefits of providing publicly funded health insurance through Medicaid, and our estimates imply it is quantitatively important. The aggregate decline in Medicaid volume is detected only in more concentrated hospital markets, suggesting market power is a key driver.
    JEL: H11 I11 I13 I18
    Date: 2023–01

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