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on Regulation |
| By: | Willems, Bert; Yueting, Yu |
| Abstract: | We compare uniform and discriminatory-price auctions in wholesale electricity markets, studying both long-run investment incentives and short-run bidding behaviors. We develop a monopolistic competition model with a continuum of generation technologies ranging from base load to peak load, free entry and uncertain elastic demand. Our findings reveal that discriminatory-price auctions are inefficient because consumers’ willingness to pay exceeds the marginal costs and investment incentives are distorted. Despite having an equal total installed capacity, the generation mix under discriminatory-price auctions skews towards a shortage of base-load technologies. Consequently, this results in a lower long-run consumer surplus. |
| JEL: | D44 D47 L94 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:128423&r=reg |
| By: | Berger, David (Duke University); Hasenzagl, Thomas (University of Minnesota); Herkenhoff, Kyle (University of Minnesota); Mongey, Simon (Federal Reserve Bank of Minneapolis); Posner, Eric A. (University of Chicago) |
| Abstract: | The DOJ and FTC clarify the role of labor market power ("monopsony") in the 2023 draft merger guidelines. The draft states in Guideline 11 that the structural presumption threshold applies to labor market concentration, while also suggesting that a stricter threshold may be warranted in labor markets. The post-merger Herfindahl-Hirschman Index (HHI) that defines a highly concentrated market is 1800, which is lower, and so stricter, than the 2010 guidelines. We provide five comments on the draft guidelines based on our recent work Berger, Hasenzagl, Herkenhoff, Mongey, and Posner (2023). (1) Explicitly addressing monopsony in the draft guidelines is grounded in economic theory and empirical research. (2) Workers benefit from the lower threshold for highly concentrated markets. (3) The narrow nature of labor markets and high degree of monopsony power in the U.S. may warrant an even lower threshold. For example, merger simulations indicate that workers would benefit if the agencies lowered the HHI threshold further—to 1500 or 1000. (4) Worker welfare is central to the 2023 draft guidelines but the language is not always clear about this. The guidelines should make clear that degradations of "worker welfare" or "total compensation" indicate anticompetitive effects. (5) Dominant firms that can slow wage growth – but not freeze or cut wages – are subject to Guideline 7. |
| Keywords: | mergers, monopsony, labor market power, concentration |
| JEL: | J42 G34 K21 L4 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp16401&r=reg |
| By: | de Cornière, Alexandre; Mantovani, Andrea; Shekhar, Shiva |
| Abstract: | We investigate the welfare effects of third-degree price discrimination by a two-sided platform that enables interaction between buyers and sellers. Sellers are heterogenous with respect to their per-interaction benefit, and, under price discrimination, the platform can condition its fee on sellers’ type. In a model with linear demand on each side, we show that price discrimination: (i) increases participation on both sides; (ii) enhances total welfare; (iii) may result in a strict Pareto improvement, with both seller types being better-off than under uniform pricing. These results, which are in stark contrast to the traditional analysis of price discrimination, are driven by the existence of cross-group network effects. By improving the firm’s ability to monetize seller participation, price discrimination induces the platform to attract more buyers, which then increases seller participation. The Pareto improvement result means that even those sellers who pay a higher price under discrimination can be better-off, due to the increased buyer participation. |
| JEL: | D42 D62 L11 L12 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:128428&r=reg |
| By: | Barbero, Javier (European Commission, Joint Research Centre (JRC)); Bengyuzov, Manol (European Commission, DG for Internal Market, Industry, Entrepreneurship and SMEs (DG GROW)); Christensen, Martin (European Commission, Joint Research Centre (JRC)); Conte, Andrea (European Commission, Joint Research Centre (JRC)); Salotti, Simone (European Commission, Joint Research Centre (JRC)); Trofimov, Aleksei (European Commission, DG for Internal Market, Industry, Entrepreneurship and SMEs (DG GROW)) |
| Abstract: | This study uses both econometric and modelling techniques to quantify the macroeconomic impact of regulatory reforms removing barriers in the European Single Market for services that have taken place in the European Union between 2006 and 2017. It also provides scenario analyses of the impact of a number of hypothetical additional reforms aimed at further reducing regulatory restrictions. The results of the modelling simulations indicate that the regulatory reforms implemented between 2006 and 2017 will result in discounted cumulative gains of 2.1% of GDP by the year 2027. Furthermore, ambitious additional reforms from 2017 onwards would generate an additional growth potential of 2.5% of GDP by 2027. Combining the realised and potential gains would result in a cumulative gain in GDP of 4.65% and a rise in employment of more than 300, 000 full time equivalents by 2027. More conservative hypotheses on the additional reforms from 2017 onwards would lead to a GDP cumulative gain of 3.22% by 2027. |
| Keywords: | Services regulation, general equilibrium modelling, Single Market, economic growth |
| JEL: | C68 R13 |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:bda:wpsmep:wp2022/6&r=reg |
| By: | Tania Babina; Simcha Barkai; Jessica Jeffers; Ezra Karger; Ekaterina Volkova |
| Abstract: | We hand-collect and standardize information describing all 3, 055 antitrust lawsuits brought by the Department of Justice (DOJ) between 1971 and 2018. Using restricted establishment-level microdata from the U.S. Census, we compare the economic outcomes of a non-tradable industry in states targeted by DOJ antitrust lawsuits to outcomes of the same industry in other states that were not targeted. We document that DOJ antitrust enforcement actions permanently increase employment by 5.4% and business formation by 4.1%. Using an event-study design, we find (1) a sharp increase in payroll that exceeds the increase in employment, meaning that DOJ antitrust enforcement increases average wages, (2) an economically smaller increase in sales that is statistically insignificant, and (3) a precise increase in the labor share. While we cannot separately measure the quantity and price of output, the increase in production inputs (employment), together with a proportionally smaller increase in sales, strongly suggests that these DOJ antitrust enforcement actions increase the quantity of output and simultaneously decrease the price of output. Our results show that government antitrust enforcement leads to persistently higher levels of economic activity in targeted industries. |
| JEL: | E24 J21 K21 L4 L40 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31597&r=reg |
| By: | Fabian Scheller; Karyn Morrissey; Karsten Neuhoff; Dogan Keles |
| Abstract: | Transitioning to a net-zero economy requires a nuanced understanding of homeowners decision-making pathways when considering the adoption of Low Carbon Technologies (LCTs). These LCTs present both personal and collective benefits, with positive perceptions critically influencing attitudes and intentions. Our study analyses the relationship between two primary benefits: the household-level financial gain and the broader environmental advantage. Focusing on the intention to adopt Rooftop Photovoltaic Systems, Energy Efficient Appliances, and Green Electricity Tariffs, we employ Partial Least Squares Structural Equation Modeling to demonstrate that the adoption intention of the LCTs is underpinned by the Theory of Planned Behaviour. Attitudes toward the LCTs are more strongly related to product-specific benefits than affective constructs. In terms of evaluative benefits, environmental benefits exhibit a higher positive association with attitude formation compared to financial benefits. However, this relationship switches as homeowners move through the decision process with the financial benefits of selected LCTs having a consistently higher association with adoption intention. At the same time, financial benefits also positively affect attitudes. Observing this trend across both low- and high-cost LCTs, we recommend that policymakers amplify homeowners' recognition of the individual benefits intrinsic to LCTs and enact measures that ensure these financial benefits. |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2308.10104&r=reg |
| By: | Gambato, Jacopo; Sandrini, Luca |
| Abstract: | We study the incentives of a streaming platform to bias consumption when products are vertically differentiated. The platform offers mixed bundles of content to monetize consumers' interest in variety and pays royalties to sellers based on the effective consumption of the content they produce. When products are not vertically differentiated, the platform has no incentive to bias consumption in equilibrium: the platform being active represents a Pareto-improvement compared to the case in which she is not. With vertical differentiation, royalties can differ; the platform always biases recommendations in favor of the cheapest content, which hurts consumers and the high-quality seller. Biased recommendation always diminishes the incentives of a seller to increase the quality of her content for a given demand. If a significant share of the users is ex-ante unaware of the existence of the sellers the platform can bias recommendations more freely, but joining the platform encourages investment in quality. The bias, however, can lead to inefficient allocation of R&D efforts. From a policy perspective, we propose this as a novel rationale for regulating algorithmic recommendations in streaming platforms. |
| Keywords: | platform economics, media economics, recommendation bias, innovation |
| JEL: | D4 L1 L5 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:23032&r=reg |
| By: | Xu Han; Zengqing Wu; Chuan Xiao |
| Abstract: | Firm competition and collusion involve complex dynamics, particularly when considering communication among firms. Such issues can be modeled as problems of complex systems, traditionally approached through experiments involving human subjects or agent-based modeling methods. We propose an innovative framework called Smart Agent-Based Modeling (SABM), wherein smart agents, supported by GPT-4 technologies, represent firms, and interact with one another. We conducted a controlled experiment to study firm price competition and collusion behaviors under various conditions. SABM is more cost-effective and flexible compared to conducting experiments with human subjects. Smart agents possess an extensive knowledge base for decision-making and exhibit human-like strategic abilities, surpassing traditional ABM agents. Furthermore, smart agents can simulate human conversation and be personalized, making them ideal for studying complex situations involving communication. Our results demonstrate that, in the absence of communication, smart agents consistently reach tacit collusion, leading to prices converging at levels higher than the Bertrand equilibrium price but lower than monopoly or cartel prices. When communication is allowed, smart agents achieve a higher-level collusion with prices close to cartel prices. Collusion forms more quickly with communication, while price convergence is smoother without it. These results indicate that communication enhances trust between firms, encouraging frequent small price deviations to explore opportunities for a higher-level win-win situation and reducing the likelihood of triggering a price war. We also assigned different personas to firms to analyze behavioral differences and tested variant models under diverse market structures. The findings showcase the effectiveness and robustness of SABM and provide intriguing insights into competition and collusion. |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2308.10974&r=reg |
| By: | OECD |
| Abstract: | The digital security of communication networks is crucial to the functioning of our societies. Four trends are shaping networks, raising digital security implications: i) the increasing criticality of communication networks, ii) increased virtualisation of networks and use of cloud services, iii) a shift towards more openness in networks and iv) the role of artificial intelligence in networks. These trends bring benefits and challenges to digital security. While digital security ultimately depends on the decisions made by private actors (e.g. network operators and their suppliers), the report underlines the role governments can play to enhance the digital security of communication networks. It outlines key policy objectives and actions governments can take to incentivise the adoption of best practices and support stakeholders to reach an optimal level of digital security, ranging from light-touch to more interventionist approaches. |
| Date: | 2023–09–13 |
| URL: | http://d.repec.org/n?u=RePEc:oec:stiaab:358-en&r=reg |
| By: | Mao, Haiou (Huazhong University); Görg, Holger (Kiel Institute for the World Economy); Fang, Guopei (Huazhong University) |
| Abstract: | We look at divestments by foreign firms – a topic that has received comparatively little attention in the literature – and investigate how changes in the regulatory environment in the host country may impact on such divestment decisions. We use the implementation of China's Two Control Zone (TCZ) policy as a "quasi-natural experiment", using detailed firm level combined with city level data for the empirical analysis. Our results show that the implementation of TCZ policy has led to higher probabilities of divestments by foreign firms in targeted TCZ cities and industries. The mechanism behind this seems to be a TCZ-induced increase in discharge fees and efforts to reduce SO2 emissions. Allowing for heterogeneity of effects, we find that the effect is particularly strong for firms from source countries with less stringent environmental regulation, and those using less advanced technology. We furthermore show that firms using intermediates from polluting industries also experience a higher probability of divestment. |
| Keywords: | foreign divestment, environmental regulation, Two Control Zone Policy, China |
| JEL: | F23 Q58 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp16406&r=reg |
| By: | Emanuele Bacchiega (Department of Computer Science and Engineering, University of Bologna, Italy); Elias Carroni (Department of Economics, University of Bologna, Italy); Alessandro Fedele (Faculty of Economics and Management, Free University of Bozen-Bolzano, Italy) |
| Abstract: | We delve into the Hotelling price competition game without assuming full market coverage, and derive three equilibrium configurations. Two of them are well-known: Hotelling duopoly, where firms set the prices with the aim of stealing customers from the rival, and the market is fully covered; Local Monopolies, where firms avoid strategic interaction and business stealing, and the market is partially covered. In the third, firms interact strategically to keep the market covered, while at the same time avoiding business stealing; we define it as Monopolistic Duopoly (MD) because it combines the features of the other two scenarios. Despite the existence of few contributions on MD, this equilibrium configuration has been substantially ignored. By spelling out the economics of MD and emphasizing its intriguing properties, we establish that MD has, instead, relevant implications for the Hotelling literature. |
| Keywords: | Hotelling Price Competition Game; Market Coverage; Monopolistic Duopoly. |
| JEL: | L13 C72 D21 |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:bzn:wpaper:bemps101&r=reg |
| By: | Joshua S. Gans; Hanna Halaburda |
| Abstract: | The core premise of permissionless blockchains is their reliable and secure operation without the need to trust any individual agent. At the heart of blockchain consensus mechanisms is an explicit cost (whether work or stake) for participation in the network and the opportunity to add blocks to the blockchain. A key rationale for that cost is to make attacks on the network, which could be theoretically carried out if a majority of nodes were controlled by a single entity, too expensive to be worthwhile. We demonstrate that a majority attacker can successfully attack with a {\em negative cost}, which shows that the protocol mechanisms are insufficient to create a secure network, and emphasizes the importance of socially driven mechanisms external to the protocol. At the same time, negative cost enables a new type of majority attack that is more likely to elude external scrutiny. |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2308.06568&r=reg |
| By: | Bighelli, Tommaso (Halle Institute for Economic Research (IWH)); Mertens, Matthias (Halle Institute for Economic Research (IWH)); Di Mauro, Filippo (Halle Institute for Economic Research (IWH)); Melitz, Marc (Harvard University) |
| Abstract: | This paper derives a European Herfindahl–Hirschman concentration index from 15 micro-aggregated country datasets. In the last decade, European concentration rose due to a reallocation of economic activity toward large and concentrated industries. Over the same period, productivity gains from an increasing allocative efficiency of the European market accounted for 50% of European productivity growth while markups stayed constant. Using country-industry variation, we show that changes in concentration are positively associated with changes in productivity and allocative efficiency. This holds across most sectors and countries and supports the notion that rising concentration in Europe reflects a more efficient market environment rather than weak competition and rising market power. |
| JEL: | D24 F15 L11 L25 O47 |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:bda:wpsmep:wp2022/9&r=reg |
| By: | Stephen K. Dimnwobi (Nnamdi Azikiwe University, Awka, Nigeria); Kingsley I. Okere (Gregory University, Uturu, Nigeria); Favour C. Onuoha (Evangel University Akaeze, Nigeria); Benedict I. Uzoechina (Nnamdi Azikiwe University, Awka, Nigeria); Chukwunonso Ekesiobi (Chukwuemeka Odumegwu Ojukwu University, Nigeria); Ebele S. Nwokoye (Nnamdi Azikiwe University, Awka, Nigeria) |
| Abstract: | The Sub-Saharan Africa region is disproportionately affected by energy poverty and is considered highly vulnerable to the impacts of climate change. Therefore, addressing the pressing challenges of energy poverty and promoting environmental sustainability in this region is of paramount importance. Consequently, this study appraises the relationship between energy poverty and ecological preservation in Sub-Saharan Africa from 2005 to 2020, using government effectiveness and regulatory quality as moderating variables. A combination of energy poverty indicators and an index of energy poverty computed via the principal component analysis method were applied to identify the link between energy poverty and ecological sustainability. The instrumental variable generalized method of moment technique was applied to address the likelihood of endogeneity issues, and the Driscoll-Kraay approach was employed to check the consistency of the instrumental variable generalized method of moment method. Key findings indicate that energy poverty expands the ecological footprint in Sub-Saharan Africa, leading to ecological deterioration, while the interaction with government effectiveness and regulatory quality further deteriorates the environment. Subsequently, the study provides several recommendations to mitigate the influence of energy poverty on the environment. |
| Keywords: | Energy Poverty, Environmental Sustainability, Government Effectiveness, Regulatory Quality, Sub-Saharan Africa |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:23/050&r=reg |
| By: | Fernando García Martínez (Banco de España); Matías Pacce (Banco de España) |
| Abstract: | El incremento de los precios de la electricidad, que alcanzó su máximo en agosto de 2022, ha afectado de forma diversa a las distintas actividades que se desarrollan en el sector eléctrico español. Este artículo analiza el impacto de dicho incremento sobre el sector, distinguiendo entre empresas generadoras y empresas comercializadoras, con especial atención a los resultados de explotación. En particular, se analiza la influencia sobre dichos resultados de aspectos como i) la incidencia de los contratos a plazo con precio fijo; ii) la exposición asimétrica a los incrementos de precios en los mercados mayoristas, o iii) la pertenencia a grupos verticalmente integrados, en el caso de las empresas comercializadoras. Asimismo, se analiza el efecto sobre el sector de las medidas desplegadas por las autoridades con el propósito de mitigar el impacto del encarecimiento de la electricidad sobre los hogares y las empresas de nuestro país. Entre estas medidas destacan, por ejemplo, el mecanismo ibérico para limitar el coste del gas empleado en la producción eléctrica o la minoración del denominado «exceso de retribución» surgido como consecuencia del aumento del precio del gas. Adicionalmente, se analiza también el impacto del gravamen temporal que las empresas energéticas deben pagar sobre la cifra neta de negocios de los años 2022 y 2023. |
| Keywords: | energía, mercado eléctrico, precios de la electricidad, costes de producción |
| JEL: | E31 Q41 Q43 L94 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:bde:opaper:2316&r=reg |
| By: | Dondero, Agustín |
| Abstract: | Se analiza la efectividad de los incentivos desplegados por el régimen de premios y sanciones para la empresa de transporte de energía eléctrica por distribución troncal Distrocuyo S.A. según revisión tarifaria del año 2017. El régimen representa para la empresa una restricción que de ser vinculante encausa la inversión en calidad de servicio con los objetivos del regulador. A su vez, el regulador enfrenta propias restricciones para parametrizar las sanciones. Se evalúa este régimen en un contexto simulado de inflación alta y volátil. Se concluye que la efectividad del régimen depende de la capacidad que tenga la empresa de diferir inversión manteniendo calidad de servicio constante. |
| Keywords: | Energía Eléctrica; Marco Regulatorio; Inversión; Argentina; |
| Date: | 2023–06–23 |
| URL: | http://d.repec.org/n?u=RePEc:nmp:nuland:3923&r=reg |
| By: | Coyle, Diane; Fabian, Mark; Beinhocker, Eric; Besley, Timothy; Stevens, Margaret |
| Abstract: | The contributions of economists have long included both positive explanations of how economic systems work and normative recommendations for how they could and should work better. In recent decades, economics has taken a strong empirical turn as well as having a greater appreciation of the importance of the complexities of real-world human behaviour, institutions, the strengths and failures of markets, and interlinkages with other systems, including politics, technology, culture and the environment. This shift has also brought greater relevance and pragmatism to normative economics. While this shift towards evidence and pragmatism has been welcome, it does not in itself answer the core question of what exactly constitutes ‘better’, and for whom, and how to manage inevitable conflicts and trade-offs in society. These have long been the core concerns of welfare economics. Yet, in the 1980s and 1990s, debates on welfare economics seemed to have become marginalised. The articles in this Fiscal Studies symposium engage with the question of how to revive normative questions as a central issue in economic scholarship. |
| Keywords: | economic welfare; normative; positive; policy |
| JEL: | I30 I32 |
| Date: | 2023–08–25 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:119787&r=reg |