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on Regulation |
| By: | Rhodes, Andrew |
| Abstract: | Drip pricing arises when a firm initially advertises a low price, then reveals additional fees as the consumer advances through the purchase process. We give examples of firms that have been pursued for engaging in drip pricing. We summarize theoretical papers on the topic, emphasizing the importance of whether drip prices are optional or mandatory, as well as the degree of consumer sophistication. We also discuss empirical papers which examine how consumers respond to drip pricing, and which examine how the ability to do drip pricing affects firm profitability. False advertising arises when firms make false claims about the “quality” of their product, which in turn cause consumers to pay more than they otherwise might. We give examples of firms that have been pursued for making such false claims. We summarize theoretical papers on the topic, emphasizing that it may not be optimal for consumers or society to impose very large fines for false advertising. For example, we argue this can be true when consumers are sophisticated and the market is relatively healthy. We also discuss empirical evidence which shows that false advertising can affect consumers’ purchase behavior, and that firms are more likely to use it when the returns are higher. |
| Keywords: | Drip pricing, Add-ons; Obfuscation, Deception; False Advertising, Regulation |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:128073&r=reg |
| By: | Jonas Tallberg; Magnus Lundgren; Johannes Geith |
| Abstract: | As the development and use of artificial intelligence (AI) continues to grow, policymakers are increasingly grappling with the question of how to regulate this technology. The most far-reaching international initiative is the European Union (EU) AI Act, which aims to establish the first comprehensive framework for regulating AI. In this article, we offer the first systematic analysis of non-state actor preferences toward international regulation of AI, focusing on the case of the EU AI Act. Theoretically, we develop an argument about the regulatory preferences of business actors and other non-state actors under varying conditions of AI sector competitiveness. Empirically, we test these expectations using data on non-state actor preferences from public consultations on European AI regulation. Our findings are threefold. First, all types of non-state actors express concerns about AI and support regulation in some form. Second, there are nonetheless significant differences across actor types, with business actors being less concerned about the downsides of AI and more in favor of lax regulation than other non-state actors. Third, these differences are more pronounced in countries with stronger commercial AI sectors than in countries with lesser developed AI sectors. Our findings shed new light on non-state actor preferences toward AI regulation and point to challenges for policymakers having to balance competing interests. |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2305.11523&r=reg |
| By: | Jens-Uwe Franck; Till Seyer |
| Abstract: | If an antitrust fine has been imposed on a company, the question of managerial recourse liability arises. We present court cases from the Netherlands, the UK, and Germany, in part denying managerial liability and claiming that it would undermine the fines’ deterrent effect. We analyse whether managerial liability should be limited or banned to prevent, on the one hand, the company or its shareholders being under-deterred or, on the other hand, the company’s management being over-deterred. Regarding the former, we argue that a ban of managerial liability – which would have to be accompanied by a ban on any other type of internal financial sanction – would take an indispensable governance instrument out of the hands of shareholders. This holds true despite the availability of D&O insurance. Regarding the latter, we identify risks of overdeterrence but also see mitigating mechanisms at work. We conclude that, while a restriction on managerial liability may be regarded a reasonable measure, this should be viewed as lying within the discretion of company law legislation and jurisprudence but not as a mandatory implication of antitrust fining laws. |
| Keywords: | antitrust law, cartels, antitrust fines, deterrence, managerial liability, antitrust compliance, D&O insurance, EU law, principle of effectiveness |
| JEL: | K21 K22 K42 L40 |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_429&r=reg |
| By: | Martin Peitz; Susumu Sato |
| Abstract: | We propose a tractable model of asymmetric platform oligopoly. Users from two distinct groups who are subject to within-group and cross-group network effects decide which platform to join. We characterize the equilibrium when platforms manage user access by setting participation fees. We explore the effects of platform entry, change of incumbent platforms’ quality under free entry, and partial compatibility on market outcomes. We show how the analysis can be extended to partial user participation and zero fees for one of the user groups. |
| Keywords: | oligopoly theory; aggregative games; network effects; two-sided markets; two-sided single-homing; free entry; compatibility |
| JEL: | L13 L41 D43 |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_428&r=reg |
| By: | Brown, David P. (University of Alberta, Department of Economics); Cajueiro, Daniel O. (University of Brasilia); Eckert, Andrew (University of Alberta, Department of Economics); Silveira, Douglas (University of Alberta, Department of Economics) |
| Abstract: | Information and data transparency have been shown to have an important impact on competitive behavior and market outcomes. Market transparency can enhance competition by allowing firms to respond efficiently to a changing market environment. However, a high degree of information can facilitate coordination by enhancing communication and the monitoring of rival behavior. A recent example highlighting concerns over the use of publicly available information to communicate across firms involves the Alberta wholesale electricity market. This market used to release anonymized information on firms’ pricing strategies in near real-time. Allegations were raised that firms were using unique patterns in their prices to reveal their identities to rival firms and coordinate on higher prices. This paper uses machine learning techniques to investigate how firms could use anonymized publicly available information to communicate with their rivals. These techniques can be employed as a possible screen to evaluate whether publicly available information can be used to identify rival behavior and facilitate coordination. Based on these results, regulators can determine if the degree of market transparency is detrimental to market competition. |
| Keywords: | Machine Learning; Electricity; Market Power; Competition Policy |
| JEL: | D43 L13 L50 L94 Q40 |
| Date: | 2023–05–23 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2023_006&r=reg |
| By: | Mario Bernasconi; Miguel Espinosa; Rocco Macchiavello; Carlos Suarez |
| Abstract: | Under collusion, firms deviate from current profit maximization in anticipation of future rewards. As current profit maximization places little restrictions on firms’ pricing behaviour, collusive conduct is hard to infer. We show that bids from certain firms in the Colombian wholesale electricity market collapsed immediately after the announcement, and before the implementation, of a reform that potentially made collusion harder to sustain. After ruling out confounders, we uncover how the cartel functioned and how firms may have communicated. Calibrating the dynamic enforcement constraint confirms that collusion was sustainable before, but not after, the reform. The conclusions discuss policy implications. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10384&r=reg |
| By: | Micael Castanheira De Moura; Georges Siotis; Carmine Ornaghi |
| Abstract: | Competition investigations start with market definition, which establishes the perimeter of the competitive analysis. In this paper, we focus on the definition of economic markets in the pharmaceutical industry, where the entry of generics in different therapeutic areas provides a sequence of quasi-natural experiments involving a significant competitive shock for the originator producer. We show how generic entry modifies price and non-price competitive constraints over time, generating market-wide effects. Paradoxically, generic entry may soften the competitive pressure for brands other than the originator. We obtain these results by econometrically estimating time-varying price elasticities. We then apply the logic of the Hypothetical Monopolist Test to gauge the strength of competitive constraints under different market structures. Our results provide strong empirical support for an approach that defines relevant markets contingent on the theory of harm. We discuss the relevance of these findings in the context of ongoing cases. |
| Keywords: | market definition; competition policy; antitrust; pharmaceutical industry |
| JEL: | D22 I11 L13 |
| Date: | 2023–02–09 |
| URL: | http://d.repec.org/n?u=RePEc:ulb:ulbeco:2013/353440&r=reg |
| By: | John Bistline; Neil Mehrotra; Catherine Wolfram |
| Abstract: | The Inflation Reduction Act (IRA) represents the largest federal response to climate change to date. We highlight the key climate provisions and assess the Act's potential economic impacts. Substantially higher investments in clean energy and electric vehicles imply that fiscal costs may be larger than projected. However, even at the high end, IRA provisions remain cost-effective. IRA has large impacts on power sector investments and electricity prices, lowering retail electricity rates and resulting in negative prices in some wholesale markets. We find small quantitative macroeconomic effects including a small decline in headline inflation, but macroeconomic conditions–particularly higher interest rates and materials costs–may have substantial negative effects on clean energy investment. We show that the subsidy approach in IRA has expansionary supply-side effects relative to a carbon tax but, in a representative-agent dynamic model, is preferable to a carbon tax only in the presence of a strong learning-by-doing externality. We also discuss the economics of the industrial policy aspects of the act as well as the distributional impacts and the possible incidence of the different tax credits in IRA. |
| JEL: | E20 L94 Q54 |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31267&r=reg |
| By: | Jacobsen, Mark; Sallee, James; Shapiro, Joseph; van Benthem, Arthur A. |
| Abstract: | What is a feasible and efficient policy to regulate air pollution from vehicles? A Pigouvian tax is technologically infeasible. Most countries instead rely on exhaust standards that limit air pollution emissions per mile for new vehicles. We assess the effectiveness and efficiency of these standards, which are the centerpiece of US Clean Air Act regulation of transportation, and counterfactual policies. We show that the air pollution emissions per mile of new US vehicles has fallen spectacularly, by over 99 percent, since standards began in 1967. Several research designs with a half century of data suggest that exhaust standards have caused most of this decline. Yet exhaust standards are not cost-effective in part because they fail to encourage scrap of older vehicles, which account for the majority of emissions. To study counterfactual policies, we develop an analytical and a quantitative model of the vehicle fleet. Analysis of these models suggests that tighter exhaust standards increase social welfare and that increasing registration fees on dirty vehicles yields even larger gains by accelerating scrap, though both reforms have complex effects on inequality. |
| Date: | 2023–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-23-18&r=reg |
| By: | Zhuang Liu; Michael Sockin; Wei Xiong |
| Abstract: | This paper develops a foundation for a consumer's preference for data privacy by linking it to the desire to hide behavioral vulnerabilities. Data sharing with digital platforms enhances the matching efficiency for standard consumption goods, but also exposes individuals with self-control issues to temptation goods. This creates a new form of inequality in the digital era—algorithmic inequality. Although data privacy regulations provide consumers with the option to opt out of data sharing, these regulations cannot fully protect vulnerable consumers because of data-sharing externalities. The coordination problem among consumers may also lead to multiple equilibria with drastically different levels of data sharing by consumers. Our quantitative analysis further illustrates that although data is non-rival and beneficial to social welfare, it can also exacerbate algorithmic inequality. |
| JEL: | D0 E0 |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31250&r=reg |
| By: | Granlund, David (Department of Economics, Umeå University); Rudholm, Niklas (Handelns Forskningsinstitut) |
| Abstract: | We present a new method for estimating the probability of collusion using observed price patterns. Having these probabilities, we can estimate the impact of the number of firms and other relevant variables on collusion as well as estimate how collusion affects prices in the market. We find that the most common form of collusion in our dataset is bid-rotation (i.e., firms taking turns in offering the lowest price in the market). Depending on specification, we find that moving from competition to collusion increases average prices by 30–65%, resulting in overcharges of between 375 and 694 million SEK (33 to 61 million USD). For two reasons, the total overcharge would be severely underestimated if we grouped observations with a likelihood of collusion below 90% and treated them as competitive, as is done in many previous studies. First, approximately half of the sales predicted to be affected by collusion are in markets with a probability of collusion below 90%. Second, the price effect of collusion is underestimated when the comparison group also contains collusive markets. Finally, our results demonstrate that multimarket contact significantly increases the risk of collusion and that increasing the number of firms from two to four reduces the risk of collusion by approximately one half. |
| Keywords: | bid rigging; price coordination; cartels; collusion screening; competition |
| JEL: | C57 D22 D44 I11 L41 |
| Date: | 2023–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:1014&r=reg |
| By: | Sven Heim (CERNA i3 - Centre d'économie industrielle i3 - Mines Paris - PSL (École nationale supérieure des mines de Paris) - PSL - Université Paris sciences et lettres - I3 - Institut interdisciplinaire de l’innovation - CNRS - Centre National de la Recherche Scientifique, CRED - Centre de Recherche en Economie et Droit - UP2 - Université Panthéon-Assas, Centre for European Economic Research (Mannheim, Germany) - Zentrum für Europäische Wirtschaftsforschung (ZEW) - Universität Mannheim [Mannheim]); Georg Götz (University of Giessen Lung Center [Giessen, Germany]) |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03519694&r=reg |
| By: | Enghin Atalay; Alan T. Sorensen; Christopher J. Sullivan; Wanjia Zhu |
| Abstract: | We examine merging firms' additions and removals of products for a sample of 66 mergers across a wide variety of consumer packaged goods markets. We find that mergers lead to a net reduction in the number of products offered by merging firms. Merging firms tend to both drop and add products at the periphery of their joint product portfolios, with the net effect of increasing within-firm product similarity. These results are consistent with theories of the firm that emphasize cost synergies among similar types of products or managerial core competencies linked to particular segments of the product market. |
| JEL: | L0 L1 L10 L13 L21 L22 L23 L25 L4 L40 |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31229&r=reg |
| By: | Beuve, Jean; Moszoro, Marian; Spiller, Pablo |
| Abstract: | We present a public procurement model in which contractual flexibility and political tolerance for contractual deviations determine renegotiations. In the model, contractual flexibility allows for adaptation without formal renegotiation, while political tolerance for deviations decreases with political competition. We then compare renegotiation rates of procurement contracts in which the procurer is either a public administration or a private corporation. We find robust evidence consistent with the model predictions: public-to- private contracts are renegotiated more often than comparable private-to-private contracts, and that this pattern is more salient in politically contestable jurisdictions. The frequent renegotiation of public contracts results from their inherent rigidity and provides a relational quality of adaptability to contingencies in politically contestable environments. |
| Keywords: | Procurement, Political Contestability, Contractual Rigidity, Renegotiations |
| JEL: | D23 D72 D73 D78 H57 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:117230&r=reg |
| By: | Glass, Catherine A.; Burgess, Diane E. |
| Abstract: | Catchment-based management approaches to improving water quality have become a popular alternative in recent years to costly water treatment which deals with the consequences of water quality issues rather than tackling them at source. These schemes have the potential to deliver multiple benefits including improvements to water quality, carbon benefits, enhanced biodiversity, greater amenity value, reduced flood risk and benefits to the local economy. However, more evidence is needed to demonstrate their cost-effectiveness. This paper reports on a cost-benefit analysis of a catchment management scheme called the Land Incentive Scheme (LIS) undertaken in the Derg catchment on the Ireland/Northern Ireland border. To calculate benefits, the Avoided Cost Method is used which provides a lower bound on the economic value of the water quality improvements secured by the scheme. Projected over a 30-year period, estimates of the benefits and costs of the LIS show that for every £1 invested there would be £3.36 worth of benefits. The majority of cost savings are achieved because regulatory breaches trigger substantial capital and operational spend that could be avoided with effective catchment management. This study shows that ‘Avoided Cost’ is a credible valuation method which can provide compelling evidence for water companies and policymakers to support investment in catchment-based approaches. |
| Keywords: | Demand and Price Analysis, Environmental Economics and Policy |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aesc23:334563&r=reg |
| By: | Jääskeläinen, Atte; Yanatma, Servet; Ritala, Paavo |
| Abstract: | Digital platforms have disrupted traditional news organizations, with new platform-based models gaining ground. However, the incumbents can defend their positions and reap the benefits of multi-sided market structures by establishing a platform business model themselves. We examine a case study of the Austrian News Agency (APA), which gradually formulated a strategy that resulted in a platform-based business model. Platform features were strategized and innovated over time and in phases, with the intent of creating value for customers on both sides of the platform. We found that APA’s platform transformation was enabled by a visionary value proposition backed by a trusted institution’s legitimacy and a co-operative organizational model that provided added incentives for the participating news media companies. The strategy and the business model emerged on the basis of external developments and internal realizations concerning the feasibility of the new platform strategy. Based on our results, we develop a framework for an incumbent strategy formation process towards a platform business model. This framework demonstrates the incumbent organization’s emergent, as well as deliberate, strategic ability to introduce platform features into its business model, based on unique intra-firm synergies with established parts of the business, and highlighting a potential for “incumbent advantage.” |
| Keywords: | platform business model; digital platform; strategy; platformization; news media; Austrian News agency; Knowledge Exchange and Impact Fund |
| JEL: | R14 J01 |
| Date: | 2021–11–18 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:112560&r=reg |
| By: | Siddhartha Banerjee; Kamesh Munagala; Yiheng Shen; Kangning Wang |
| Abstract: | A seller is pricing identical copies of a good to a stream of unit-demand buyers. Each buyer has a value on the good as his private information. The seller only knows the empirical value distribution of the buyer population and chooses the revenue-optimal price. We consider a widely studied third-degree price discrimination model where an information intermediary with perfect knowledge of the arriving buyer's value sends a signal to the seller, hence changing the seller's posterior and inducing the seller to set a personalized posted price. Prior work of Bergemann, Brooks, and Morris (American Economic Review, 2015) has shown the existence of a signaling scheme that preserves seller revenue, while always selling the item, hence maximizing consumer surplus. In a departure from prior work, we ask whether the consumer surplus generated is fairly distributed among buyers with different values. To this end, we aim to maximize welfare functions that reward more balanced surplus allocations. Our main result is the surprising existence of a novel signaling scheme that simultaneously $8$-approximates all welfare functions that are non-negative, monotonically increasing, symmetric, and concave, compared with any other signaling scheme. Classical examples of such welfare functions include the utilitarian social welfare, the Nash welfare, and the max-min welfare. Such a guarantee cannot be given by any consumer-surplus-maximizing scheme -- which are the ones typically studied in the literature. In addition, our scheme is socially efficient, and has the fairness property that buyers with higher values enjoy higher expected surplus, which is not always the case for existing schemes. |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2305.07006&r=reg |
| By: | Michelle W. Bowman |
| Date: | 2023–05–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgsq:96212&r=reg |
| By: | Juan Diego Otero Martín |
| Abstract: | En este documento se describe cómo se ha desarrollado este proceso, centrándose en la evolución de su regulación en el mercado español. Para ello se analizan las diferentes etapas de la intervención regulatoria, explicando en detalle algunos de los ejemplos más relevantes que han contribuido a la situación actual: desarrollo de las ofertas de referencia, regulación de los servicios móviles y regulación de la banda ancha |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:fda:fdaeee:eee2023-16&r=reg |
| By: | Fabio Ascione; Maria Enrica Virgillito |
| Abstract: | Against a theoretical background which recognizes the gains from trade liberalization, this paper asks whether, and if so to what extent, economic integration as directly measured through vertically integrated value-added has increased or reduced convergence among European industries and related countries. To answer this question, we draw upon new input-output tables and sectoral divergence measures for 14 European countries and 19 sectors since 1970. Our novel database provides consistent long-run measures of international input–output linkages and sectoral dispersion in labor productivity and wages. We use these measures to study the timing and mechanisms that govern the relationship between economic integration and sectoral gaps, taking a European perspective and focusing on the role of international production fragmentation via input-output linkages. According to our findings, higher vertical integration has fostered divergence rather than convergence within industries. Lock-in effects in laggard positions coupled with positive feedback loops and increasing returns for leading positions are potential mechanisms to explain why the fruits of rising vertical integration are shared unequally between poor-performing industries and frontier industries. |
| Keywords: | input-output analysis; divergence; economic integration; Europe; trade liberalization. |
| Date: | 2023–06–04 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2023/25&r=reg |