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on Regulation |
| By: | Billimoria, F.; Simshauser, P. |
| Abstract: | Challenges to the term financing of standalone storage in energy-only electricity markets relate to the difficulty of obtaining long-tenor contracts given multiple volatile revenue streams. Government and central agency-initiated contracting and procurement of storage has garnered interest as a means of catalysing adoption and learning curve effects, particularly given the required scale and pace of the decarbonisation objective. Given the complexity of storage operations and multiple streams of value, standard contract forms are yet to emerge. While there is flexibility in the design of forward contract arrangements, flow on effects of design on incentive compatibility in dispatch, risk-trading and investment represent a critically important avenue of investigation. This article establishes six principles for government-initiated contracting and examines the incentive compatibility of storage contract designs. We find that that preferences for structural simplicity in contract design could introduce incentive incompatibility without careful consideration of the interactions between storage operations and investment. |
| Keywords: | Electricity markets, risk trading, project finance, renewables, energy storage |
| Date: | 2023–03–06 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2322&r=reg |
| By: | Giuseppe Nicoletti; Cristiana Vitale; Carolina Abate |
| Abstract: | Digital markets have raised a number of new competition challenges. Ex-post competition policy appears not to be able to address them in their entirety and with the necessary speed. There is considerable consensus, among academics and policy-makers, that ex-ante regulatory policies are needed to avoid competition being stifled in these markets, with a negative impact on productivity and innovation. As a result, major OECD economies are discussing or have approved regulatory proposals with the aim to foster contestability and fair trade in digital markets. |
| Keywords: | Competition, Digital Economy, Digital Market Act, Digital Markets, Gatekeepers, Platforms, Product Market Regulation, Productivity, Regulation |
| JEL: | D4 K3 L1 L2 L4 L5 |
| Date: | 2023–03–20 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1752-en&r=reg |
| By: | Paolo Bova; Alessandro Di Stefano; The Anh Han |
| Abstract: | In the context of rapid discoveries by leaders in AI, governments must consider how to design regulation that matches the increasing pace of new AI capabilities. Regulatory Markets for AI is a proposal designed with adaptability in mind. It involves governments setting outcome-based targets for AI companies to achieve, which they can show by purchasing services from a market of private regulators. We use an evolutionary game theory model to explore the role governments can play in building a Regulatory Market for AI systems that deters reckless behaviour. We warn that it is alarmingly easy to stumble on incentives which would prevent Regulatory Markets from achieving this goal. These 'Bounty Incentives' only reward private regulators for catching unsafe behaviour. We argue that AI companies will likely learn to tailor their behaviour to how much effort regulators invest, discouraging regulators from innovating. Instead, we recommend that governments always reward regulators, except when they find that those regulators failed to detect unsafe behaviour that they should have. These 'Vigilant Incentives' could encourage private regulators to find innovative ways to evaluate cutting-edge AI systems. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2303.03174&r=reg |
| By: | Jolian McHardy (Department of Economics, University of Sheffield, UK) |
| Abstract: | Strategic price interaction on networks with rival and interchangeable services are well-known to produce damaging externalities with which the number of agents acting independently can interact in non-linear ways. We examine how varying the number of independent agents can impact the relative performance of platform models on a transport network whose design can mitigate some of the damaging externalities in the 2-agent setting. We show that increasing the number of agents can preserve or enhance some of the benefits of the platform models under some circumstances but the platform structure, that abates damaging externalities with 2-agents, can constrain beneficial competitive forces with more agents, damaging relative performance. |
| Keywords: | Platform; Strategic Interaction; Multi-operator; Transport Network; Pricing; Welfare |
| JEL: | D43 L13 L91 R40 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:shf:wpaper:2023007&r=reg |
| By: | Javier D. Donna (University of Florida); Pedro Pereira (Instituto Universitário de Lisboa) |
| Abstract: | We discuss a subset of vertical mergers, where the exercise of market power and the efficiencies enabled by a vertical merger reduce rivals’ profits, making rivals’ exit a potentially serious concern. Rivals’ exit can fundamentally alter the welfare analysis of vertical mergers due to the reduction in product variety to consumers and the reduction in the number of competitors that would otherwise exert downward pricing pressure. An exit-inducing vertical merger might reduce welfare even if it is a welfare-enhancing merger absent exit. We present a theoretical framework to analyze vertical mergers that focuses on the possibility and consequences of exit, discuss the antitrust implications for merger evaluation, and provide examples. We argue that the possibility of rivals’ exit should be an integral part of the analysis of vertical mergers. |
| Keywords: | Antitrust, Vertical Mergers, Rivals’ Exit, Double Marginalization, Merger Evaluation, Competition Policy. |
| JEL: | K21 K41 L42 L44 L52 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:225&r=reg |
| By: | Chen, Yongmin |
| Abstract: | I review models of consumer search and competition when product quality is uncertain and differs across firms. Although firms are vertically---and possibly also horizontally---differentiated, an appropriate symmetric price equilibrium with optimal consumer search can be neatly characterized. I propose a "random-quality" framework that unifies these models and discuss their insights on the operation of consumer search markets, focusing on (i) online advertising and search through platforms, (ii) the welfare effects of entry in search markets, and (iii) the role of quality observability under search frictions. I suggest directions for further research on these and related topics. |
| Keywords: | consumer search, search cost, competition, product quality, firm quality, platform, entry, inspection goods, experience goods, quality observability. |
| JEL: | D8 L1 |
| Date: | 2023–03–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:116609&r=reg |
| By: | María T. Verónica Culós; María Florencia Gabrielli; Marcos Herrera Gómez |
| Abstract: | The liquid fuels market in Argentina is characterized by a high level of concentration, especially in local geographic areas. This paper studies the demand of the liquid fuels wholesale chain in Argentina, using the discrete choice approach, based on the premise that different firms offer differentiated goods, by virtue of the intrinsic characteristics of the good, and that such differentiation gives them the power to set prices above marginal production costs. The difference between prices and marginal costs determines the firms market power. Using a novel dataset, we provide new empirical evidence that quantifies market power across firms and regions. |
| JEL: | C52 L13 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:aep:anales:4554&r=reg |
| By: | Markus Brueckner; Haidi Hong; Joaquin Vespignani |
| Abstract: | This paper presents estimates of the effects that government regulation of diesel and petrol prices has on GDP growth. Theory suggests that when supply curves are convex, a decrease in the regulatory price has a larger effect on output than a tantamount increase. Motivated by this theoretical insight, we specify VAR models with asymmetric effects of positive and negative changes in the regulatory prices of diesel and petrol. We estimate the VAR models on quarterly data from China’s national accounts during the period Q1 1998 to Q4 2018. Our main findings are that: (i) negative growth rates of regulatory diesel and petrol prices significantly reduce GDP growth; (ii) positive growth rates of regulatory diesel and petrol prices have a positive, but quantitatively small and statistically insignificant effect on GDP growth. |
| Keywords: | GDP growth, energy price regulation |
| JEL: | Q43 K20 E02 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2023-17&r=reg |
| By: | Roman Fossati; Roberto Hernan González; Praveen Kujal |
| Abstract: | List-pricing and discounting is a common practice in retail and wholesale markets. Under this pricing mechanism, a posted list price is offered to sellers in a prior stage which can then de discounted at a later in a second stage. The practice of list pricing and discounting is viewed as collusive theoretically, however, its interpretation amongst competition authorities varies from being pro-competitive to being a collusion facilitating device. We experimentally test how list pricing and discounting impact prices in a capacity constrained Bertrand-Edgeworth duopoly with symmetric and asymmetric firms. We find evidence of collusion under list pricing and discounting with symmetric as well as with asymmetric firms relative to a baseline case without the discounting stage. |
| JEL: | C9 L0 L1 L4 L11 L13 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:aep:anales:4564&r=reg |
| By: | Thamae, Retselisitsoe I; Odhiambo, Nicholas M |
| Abstract: | This paper reviews the theoretical and empirical literature on the impact of bank regulation on bank lending. It also structures the empirical evidence according to the impact of various bank regulatory measures on bank lending. The surveyed theoretical literature generally indicates that the impact of bank regulation on lending could be asymmetric, depending on the trade-off between the costs and benefits of bank regulation. The evidence from the empirical studies also shows that the impact of bank regulatory measures on lending is ambiguous. Although many studies found the impact to be negative, some established that it was positive while others found it to be insignificant or inconclusive. However, most empirical studies only assumed first-round effects using static and/or dynamic models, whereas the ones incorporating second-round effects using general equilibrium models were limited. Therefore, this systematic review of the literature indicates that policy recommendations regarding the appropriateness and efficacy of bank regulatory measures in influencing bank lending cannot be implemented uniformly across different regions or countries. |
| Keywords: | Bank regulation, bank lending, bank regulatory measures, bank credit |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:uza:wpaper:29837&r=reg |
| By: | Serge Moresi (Charles River Associates, Inc.); Marius Schwartz (Department of Economics, Georgetown University) |
| Abstract: | Extant literature shows that Arrow’s famous result—a secure monopolist gains less from a nondrastic process innovation than would a competitive firm—does not always extend to nondrastic product innovations. If the new product is horizontally differentiated, the monopolist can have a greater incentive to add the new product than a firm that would face competition from the old product; but the monopolist’s incentive to add the new product cannot be greater if the new product is vertically differentiated with higher quality than the old. This paper compares the incentives when the new product is vertically differentiated but of lower quality, a common case empirically. We show that, as with horizontal differentiation, the monopolist can have the greatest incentive to add the new product. However, in all the cases analyzed, consumer welfare (though not total welfare) is lower under monopoly, even when only the monopolist would add the new product. Our analysis also helps clarify why the ranking of incentives depends on the type of product differentiation and on whether the market is covered or not. |
| Keywords: | Product Innovation Incentives, Vertical Differentiation, Monopoly vs. Competition |
| JEL: | L1 L4 |
| Date: | 2023–01–22 |
| URL: | http://d.repec.org/n?u=RePEc:geo:guwopa:gueconwpa~23-23-01&r=reg |
| By: | Soheil Ghili; Russ Yoon |
| Abstract: | In "continuous choice" settings, consumers decide not only on whether to purchase a product, but also on how much to purchase. As a result, firms should optimize a full price schedule rather than a single price point. This paper provides a methodology to empirically estimate the optimal schedule under multi-dimensional consumer heterogeneity. We apply our method to novel data from an educational-services firm that contains purchase-size information not only for deals that materialized, but also for potential deals that eventually failed. We show that the optimal second-degree price discrimination (i.e., optimal nonlinear tariff) improves the firm's profit upon linear pricing by about 7.9%. That said, this second-degree price discrimination scheme only recovers 7.4% of the gap between the profitability of linear pricing (i.e., no price discrimination) and that of infeasible first degree price discrimination. We also conduct several further counterfactual analyses (i) comparing the role of demand- v.s. cost-side factors in shaping the optimal price schedule, (ii) examining third-degree price discrimination, and (iii) empirically quantifying the magnitude by which incentive-compatibility constraints impact the optimal pricing and profits. |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2302.11643&r=reg |
| By: | Schilling, Linda |
| Abstract: | Policy makers have developed different forms of policy intervention for stopping, or preventing runs on financial firms. This paper provides a general framework to characterize the types of policy intervention that indeed lower the run-propensity of investors versus those that cause adverse investor behavior, which increases the run-propensity. I employ a general global game to analyze and compare a large set of regulatory policies. I show that common policies such as bailouts, Emergency Liquidity Assistance, and withdrawal fees either exhibit features that lower firm stability ex ante, or have offsetting features rendering the policy ineffective. |
| Keywords: | financial regulation, bank runs, global games, policy effectiveness, bank resolution, withdrawal fees, emergency liquidity assistance, lender of last resort policies, money market mutual fund gates, suspension of convertibility |
| JEL: | D81 D82 E61 G21 G28 G33 G38 |
| Date: | 2023–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:116612&r=reg |
| By: | Cerniauskas, Simonas; Fulton, Lewis; Ogden, Joan |
| Keywords: | Engineering, Social and Behavioral Sciences, transportation fuel, hydrogen, transportation infrastructure, pipeline |
| Date: | 2023–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:itsdav:qt1z0325v2&r=reg |
| By: | Soumen Banerjee |
| Abstract: | Attention has recently been focused on the possibility of artificially intelligent sellers on platforms colluding to form cartels to limit output and raise prices. Such cartels, however, feature an incentive for individual sellers to deviate from the prescribed quantities and prices (cheating) to increase their own profits. Stabilizing such cartels therefore requires credible threats of punishments such as price wars. In this paper, I propose a mechanism to destabilize cartels by protecting any cheaters from a price war by guaranteeing a stream of profits which is unaffected by arbitrary punishments. This method applies to the sale of differentiated goods on (multiple) platforms or homogeneous goods through direct sales. This method for destabilizing cartels operates purely off-equilibrium, induces no welfare losses, features very low informational requirements (sale price and quantity data suffices) and does not depend on the choice of discount factors. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2303.02576&r=reg |
| By: | Jules Depersin; B\'ereng\`ere Patault |
| Abstract: | Search frictions can impede the formation of optimal matches between consumer and supplier, or employee and employer, and lead to inefficiencies. This paper revisits the effect of search frictions on the firm size distribution when challenging two common but strong assumptions: that all agents share the same ranking of firms, and that agents meet all firms, whether small or large, at the same rate. We build a random search model in which we relax those two assumptions and show that the intensity of search frictions has a non monotonic effect on market concentration. An increase in friction intensity increases market concentration up to a certain threshold of frictions, that depends on the slope of the meeting rate with respect to firm size. We leverage unique French customs data to estimate this slope. First, we find that in a range of plausible scenarios, search frictions intensity increases market concentration. Second, we show that slopes have increased over time, which unambiguously increases market concentration in our model. Overall, we shed light on the importance of the structure of frictions, rather than their intensity, to understand market concentration. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2303.01824&r=reg |
| By: | Thomas Standfuss; Georg Hirte; Michael Schultz; Hartmut Fricke |
| Abstract: | We systematically study cornerstones that must be solved to define an air traffic control benchmarking system based on a Data Envelopment Analysis. Primarily, we examine the appropriate decision-making units, what to consider and what to avoid when choosing inputs and outputs in the case that several countries are included, and how we can identify and deal with outliers, like the Maastricht Service Provider. We argue that Air Navigation Service Providers would be a good choice of decision units within the European context. Based on that, we discuss candidates for DEA inputs and outputs and emphasize that monetary values should be excluded. We, further suggest to use super-efficiency DEA for eliminating outliers. In this context, we compare different DEA approaches and find that standard DEA is performing well. |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2302.07525&r=reg |
| By: | Martin Chorzempa (Peterson Institute for International Economics); Nicolas Veron (Peterson Institute for International Economics) |
| Abstract: | China's reshuffle of its financial supervisory architecture announced in March, like previous changes, appears incremental rather than radical. It will not, however, resolve the main challenge hobbling China's financial system, which is not linked to specific choices of supervisory architecture but rather to the unfinished transition from a state-directed to a market-based financial system and the way the Chinese Communist Party's pervasive role creates obstacles to good corporate governance of individual financial firms and to the independence of supervisory authorities. Too often, political authorities and sometimes the supervisors themselves intervene directly in financial firms' decisions to allocate capital and credit, occasionally resulting in failures of risk control and risk management. The authors argue that Chinese reformers should aim at a clearer and more rigorous division of responsibilities, in which financial firms manage financial opportunities and risks, and supervisors are exclusively focused on their respective public policy mandates. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:iie:pbrief:pb23-1&r=reg |
| By: | Chen, Chien-Hsun |
| Abstract: | In China, mergers and acquisitions (M&As) have had a long-run impact on companies’ operational and financial rearrangements in the process of the country’s economic restructuring and rebalancing. The vibrancy of China’s M&A market is reflected in the gradual maturity of Chinese companies and the massive commercial opportunities that arose following the phenomenal growth of China’s economy. The initial motives behind Chinese domestic M&As were to save poorly governed state-owned enterprises in what may be termed the “rescue mission”. Most M&As involve state-owned enterprises that play a dominant role in China’s capital markets. The success of Japanese keiretsu and South Korean chaebols has prompted China to develop business groups in its economy to enhance the competitive advantage of Chinese companies through economies of scale and improved company performance. Foreign inbound M&As can monopolize positions in certain industries and destroy a fair competitive environment. This in turn has seriously threatened the existence and growth of Chinese companies. |
| Keywords: | China; mergers and acquisitions; business strategies; state-owned enterprises |
| JEL: | M10 M31 M38 |
| Date: | 2023–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:116615&r=reg |