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on Regulation |
| By: | Christos Genakos; Costas Roumanias; Tommaso Valletti |
| Abstract: | We present novel evidence from a large panel of UK consumers who receive personalized reminders from a specialist price-comparison website about the precise amount they could save by switching to their best-suited alternative mobile telephony plan. We document three phenomena. First, even self-registered consumers with positive savings exhibit inertia. Second, we show that being informed about potential savings has a positive and significant effect on switching. Third, controlling for savings, the effect of incurring overage payments is significant and similar in magnitude to the effect of savings: paying an amount that exceeds the recurrent monthly fee weighs more on the switching decision than being informed that one can save that same amount by switching to a less inclusive plan. We interpret this asymmetric reaction on switching behavior as potential evidence of loss aversion. In other words, when facing complex and recurrent tariff plan choices, consumers care about savings but also seem to be willing to pay upfront fees in order to get "peace of mind". |
| Keywords: | tariff/plan choice, inertia, switching, loss aversion, mobile telephony |
| Date: | 2023–07–25 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1939&r=reg |
| By: | Marius Schwartz (Department of Economics, Georgetown University); Yongmin Chen (Department of Economics, University of Colorado Boulder) |
| Abstract: | We analyze alternative ways to assign the default position for competing digital goods such as search engines. When two firms vie for the position through bidding, the higher-quality firm typically wins but delivers lower utility than the rival due to heightened monetization (e.g., unwanted ads), exploiting consumers' switching costs. Paradoxically, increasing via regulation the rival's default share tends to raise profit and harm consumers, at least in the short run. Delegating the default choice to consumers benefits them but harms the weaker firm. Our findings highlight the subtle welfare tradeoffs in default assignment, an important and controversial policy issue. |
| Keywords: | Default Position, Digital Goods, Competition, Regulation |
| JEL: | L1 L4 |
| Date: | 2023–09–27 |
| URL: | http://d.repec.org/n?u=RePEc:geo:guwopa:gueconwpa~23-23-05&r=reg |
| By: | Xuan Teng (LMU Munich) |
| Abstract: | Platforms often display their products ahead of third-party products in search. Is this due to consumers preferring platform-owned products or platforms engaging in self-preferencing by biasing search towards their own products? What are the welfare implications? I develop a structural model of mobile application markets to identify self-preferencing and quantify its welfare effects, taking into account third-party developers' quality adjustment. A new dataset on app downloads, prices, characteristics, and search rankings is used to estimate the model. Estimates indicate self-preferencing. Simulations show higher consumer welfare and third-party profits without self-preferencing. |
| Keywords: | competition policy; platform design; consumer search; endogenous product choice; |
| JEL: | D12 D83 L13 L86 |
| Date: | 2023–10–23 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:434&r=reg |
| By: | Debashrita Mohapatra; Debi Prasad Mohapatra; Ram Sewak Dubey |
| Abstract: | This paper studies the widespread price dispersion of homogeneous products across different online platforms, even when consumers can easily access price information from comparison websites. We collect data for the 200 most popular hotels in London (UK) and document that prices vary widely across booking sites while making reservations for a hotel room. Additionally, we find that prices listed across different platforms tend to converge as the booking date gets closer to the date of stay. However, the price dispersion persists until the date of stay, implying that the "law of one price" does not hold. We present a simple theoretical model to explain this and show that in the presence of aggregate demand uncertainty and capacity constraints, price dispersion could exist even when products are homogeneous, consumers are homogeneous, all agents have perfect information about the market structure, and consumers face no search costs to acquire information about the products. Our theoretical intuition and robust empirical evidence provide additional insights into price dispersion across online platforms in different institutional settings. Our study complements the existing literature that relies on consumer search costs to explain the price dispersion phenomenon. |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2310.12341&r=reg |
| By: | Do, Hung Xuan (School of Economics and Finance, Massey University); Nepal, Rabindra (Faculty of Business and Law, University of Wollongong); Pham, Son Duy (Finance, University of Aberdeen Business School); Jamasb, Tooraj (Department of Economics, Copenhagen Business School) |
| Abstract: | Despite the massive impacts of the COVID-19 pandemic and the Russia-Ukraine war on the European energy market, little is known about their effects on the transmission of risks between member states’ electricity markets and key electricity sources. In this paper, we first employ the quantile connectedness approach to quantify the return connectedness between eleven European electricity markets, natural gas, and carbon market, then examine the impacts of the two crises on the interconnectedness. We find a significant return interconnectedness of the system, mainly driven by the spillover effects among European electricity markets. An investigation of the connectedness across quantiles shows that the spillover effects are much stronger at the tails of conditional distribution and the natural gas and carbon markets are net recipients of return shocks across quantiles. More importantly, our results reveal opposite effects of the two crises on interconnectedness. While the COVID-19 pandemic reduces the interconnectedness, the Russia-Ukraine war intensifies the return shock transmission. |
| Keywords: | Natural gas; European Emission Allowance; Electricity markets; COVID-19; Russia-Ukraine war; Quantile connectedness |
| JEL: | D04 L94 Q43 |
| Date: | 2023–06–02 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cbsnow:2023_008&r=reg |
| By: | Waterson, Michael (University of Warwick) |
| Abstract: | This paper analyses the consumer impacts of arbitrage focusing on the significant role of internet platforms as monopolistic arbitrageurs between essentially competitive sub-markets that have not been previously linked. As arbitrageurs, there is the potential for them to create consumer benefit, but for a series of reasons, we show that consumer welfare may not be enhanced and that particular sections of the community may be disadvantaged by their actions. |
| Keywords: | Arbitrage ; Consumer welfare ; Platforms ; Two-sided markets JEL Codes: D51 ; L81 ; L86 ; D47 ; F11 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1481&r=reg |
| By: | Matthias Mertens; Bernardo Mottironi |
| Abstract: | Several models posit a positive cross-sectional correlation between markups and firm size, which characterizes misallocation, factor shares, and gains from trade. Accounting for labor market power in markup estimation, we find instead that larger firms have lower product markups but higher wage markdowns. The negative markup-size correlation turns positive when conditioning on markdowns, suggesting interactions between product and labor market power. Our findings are robust to common criticism (e.g., price bias, non-neutral technology) and hold across 19 European countries. We discuss possible mechanisms and resulting implications, highlighting the importance of studying input and output market power in a unified framework. |
| Keywords: | markups, markdowns, market power, firm size |
| Date: | 2023–09–21 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1945&r=reg |
| By: | Moez Kilani; André de Palma |
| Abstract: | We analyze spatial competition on a circle between firms that have multiple outlets and face quadratic transport costs. The equilibrium is a two-stage Nash game: first, firms decide on their locations and then set their prices. We are able to solve analytically simple multi-outlet cases, but for the general case, we require an algorithm to enumerate all non-isomorphic configurations. While price equilibria are explicit and unique, solving the full two-stage game requires numerical methods. In the location game, we consider two scenarios: either firms cannot jump one outlet over a competitors’ outlet, or firms have the flexibility to locate outlets anywhere on the circle. The solution involves a balance between cannibalization, market protection, and spatial monopoly power. We compare prices, profits, and transport costs for all possible configurations. With flexible locations, the firms’ market areas are contiguous. In this case, surprisingly, each firm acts as a spatial monopoly. If regulations enforce that each firm must set the same price for its outlets, head-to-head competition prevails, leading to decreased profits for the firms but to a better-off situation for consumers. |
| Keywords: | Spatial competition, circle, multi-product oligopoly, price-location equilibria, coin change problem. |
| JEL: | L13 R32 R53 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2023-33&r=reg |
| By: | Tom Nonnenmacher; Jenny Nelson; Benedict Winchester |
| Abstract: | The rising energy prices in Europe and the urgent need to address global warming have sparked a significant increase in the installation of domestic photovoltaic systems to harness solar energy. However, since solar energy is available only during daytime hours and its availability varies daily, effectively shifting energy use becomes crucial. Whilst batteries can assist in storing excess energy, their high prices hinder their widespread adoption. In this study, we explore the importance of load to maximise return on investment. We propose an incremental approach to fitting load profiles into the production envelope, allowing for practical implementation. We compare different meter resolutions: 1 second, 5 minutes, 15 minutes, and 1 hour. Our analysis reveals that making real-time decisions (per second) leads to significant energy savings of 16\% compared to hourly decisions. Furthermore, we explore three types of device management strategies: ON/OFF management independent of PV production, ON/OFF management based on the current PV production, ON/OFF management based on both current and forecasted PV production, utilising an optimal fit algorithm. Through our study, we demonstrate that our implementation of the third approach outperforms a standard management approach, resulting in more than 17% cost savings. This study provides insights into the optimisation of load-shifting strategies in domestic photovoltaic installations, highlighting the importance of load control and the potential benefits in maximising the utilisation of solar energy while minimising energy costs and environmental impact. |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2310.09323&r=reg |
| By: | Gale Boyd; Matthew Doolin; Yu Ma; Jennifer Weiss |
| Abstract: | Industry accounts for one-third of energy consumption in the US. Studies suggest that energy efficiency opportunities represent a potential energy resource for regulated utilities and have resulted in rate of return regulated demand-side management (DSM) and energy efficiency (EE) programs. However, many large customers are allowed to self-direct or opt-out. In the Carolinas (NC and SC), over half of industrial and large commercial customers have selected to opt out. Although these customers claim they invest in EE improvements when it is economic and cost-effective to do so, there is no mechanism to validate whether they actually achieved energy savings. This project examines the industrial energy efficiency between the program participants and non participants in the Carolinas by utilizing the non-public Census of Manufacturing data and the public list of firms that have chosen to opt out. We compare the relative energy efficiency between the stay-in and opt-out plants. The t-test results suggest opt-out plants are less efficient. However, the opt-out decisions are not random; large plants or plants belonging to large firms are more likely to opt out, possibly because they have more information and resources. We conduct a propensity score matching method to account for factors that could affect the opt-out decisions. We find that the opt-out plants perform at least as well or slightly better than the stay-in plants. The relative performance of the opt-out firms suggest that they may not need utility program resources to obtain similar levels of efficiency from the stay-in group. |
| Keywords: | Demand-side management, energy efficiency, energy policy |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:23-52&r=reg |
| By: | David Kr\"oger; Milijana Teodosic; Christian Rehtanz |
| Abstract: | The large-scale integration of flexible heating systems in the European electricity market leads to a substantial increase of transportation requirements and consecutively grid congestions in the continental transmission grid. Novel model formulations for the grid-aware operation of both individual small-scale heat pumps and large-scale power-to-heat (PtH) units located in district heating networks are presented. The functionality of the models and the contribution of flexible heating systems for transmission grid congestion management is evaluated by running simulations for the target year 2035 for the German transmission grid. The findings show a decrease in annual conventional redispatch volumes and renewable energy sources (RES) curtailment resulting in cost savings of approximately 6 % through the integration of flexible heating systems in the grid congestion management scheme. The analysis suggests that especially large-scale PtH units in combination with thermal energy storages can contribute significantly to the alleviation of grid congestion and foster RES integration. |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2310.15933&r=reg |
| By: | Pourkhanali, Armin (Economics Finance & Marketing, Royal Melbourne Institute of Technology); Kholghi, Donya (Department of Mathematics, Institute for Advanced Studies in Basic Sciences); Llorca, Manuel (Department of Economics, Copenhagen Business School); Jamasb, Tooraj (Department of Economics, Copenhagen Business School) |
| Abstract: | This empirical analysis investigates the determinants and dynamics of energy poverty in Spain using a combination of traditional regression models and machine learning techniques. The study identifies significant determinants of energy poverty, including income, housing type, education level, and health conditions. Findings demonstrate that lower income, specific housing types, and lower education levels increase the likelihood of energy poverty. This study also investigates the dynamics of energy poverty, and the results show the coexistence of both transient and persistent aspects of energy poverty. 35% of Spanish households struggled to maintain adequate warmth in their homes during at least one period from 2016 to 2021. While a small portion (5%) experienced chronic energy poverty, indicating their inability to maintain their home adequate warmth throughout the 70% sample period. Finally, the study offers valuable insights into the dynamics and drivers of energy poverty. It underscores both its temporary and persistent characteristics, in addition to the impact of socioeconomic factors. |
| Keywords: | Transient and persistent energy poverty; Self-assessed health; Dynamic random effects probit; Machine learning |
| JEL: | C01 D63 I14 I32 |
| Date: | 2023–10–17 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cbsnow:2023_009&r=reg |
| By: | Pullinger, Martin (University College London); Zapata-Webborn, Ellen (University College London); Kilgour, Jonathan; Elam, Simon; Few, Jessica; Goddard, Nigel; Hanmer, Clare; McKenna, Eoghan James; Oreszczyn, Tadeusz; Webb, Lynda |
| Abstract: | This study investigates typical domestic energy demand profiles and their variation over time. It draws on a sample of 13, 000 homes from Great Britain, applying k-means cluster analysis to smart meter data on their electricity and gas demand over a three-year period from September 2019 to August 2022. Eight typical demand archetypes are identified from the data, varying in terms of the shape of their demand profile over the course of the day. These include an ‘All daytime’ archetype, where demand rises in the morning and remains high until the evening. Several other archetypes vary in terms of the presence and timing of morning and/or evening peaks. In the case of electricity demand, a ‘Midday trough’ archetype is notable for its negative midday demand and high overnight demand, likely a combination of the effects of rooftop solar panels exporting to the grid during the day and overnight charging of electric vehicles or electric storage heating. The prevalence of each archetype across the sample varies substantially in relation to different temporally-varying factors. Fluctuations in their prevalence on weekends can be identified, as can Christmas Day. Among homes with gas central heating, the prevalence of gas archetypes strongly relates to external temperature, with around half of homes fitting the ‘All daytime’ archetype at temperatures below 0°C, and few fitting it above 14°C. COVID-19 pandemic restrictions on work and schooling are associated with households’ patterns of daily demand becoming more similar on weekdays and weekends, particularly for households with children and/or workers. The latter group had still not returned to pre-pandemic patterns by March 2022. The results indicate that patterns of daily energy demand vary with factors ranging from societal weekly rhythms and festivals to seasonal temperature changes and system shocks like pandemics, with implications for demand forecasting and policymaking. |
| Date: | 2023–10–19 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:ckyb6&r=reg |
| By: | Sebastian Doerr; Jon Frost; Leonardo Gambacorta; Vatsala Shreeti |
| Abstract: | The entry of big tech companies into the financial services sector can bring significant benefits in terms of efficiency and financial inclusion. Yet big techs can also quickly dominate markets, engage in discriminatory behaviour, and harm data privacy. This leads to the emergence of new trade-offs between policy goals such as financial stability, competition and privacy. Regulators, both domestically and internationally, are actively working to address these trade-offs. This paper provides an overview over the state of the literature and the policy debate. |
| Keywords: | big techs, financial inclusion, competition, financial stability, data privacy |
| JEL: | E51 G23 O31 |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1129&r=reg |
| By: | Sergei Kichko (University of Trento, IT); Pierre M. Picard (DEM, Université du Luxembourg) |
| Abstract: | This paper studies the market and welfare effects of income heterogeneity in monopo- listically competitive product markets in the context of nonhomothetic preferences. In a closed economy, where richer individuals' expenditures are less sensitive to price change compared to poorer ones', a mean-preserving contraction of income distribution entices firms to charge higher markups, reduce output, and fosters creation of new varieties. General equilibrium effects have a negative impact on poorer individuals and, in specific circumstances, on the whole population. In an open economy with free trade, lower in- come inequality in one country creates price divergence between trading countries. Lower inequality not only further decreases trade volumes and values but also creates a general equilibrium effect that may negatively affect poor individuals. Finally, general equilibrium effects are shown to be quantitatively nonnegligible. |
| Keywords: | Monopolistic competition, nonhomothetic additive preferences, income inequality, pricing-to-markets, welfare, trade. |
| JEL: | D43 L16 F12 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:23-02&r=reg |