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on Regulation |
| By: | Joe DeLosa III; Johannes P. Pfeifenberger; Paul Joskow |
| Abstract: | The U.S. regulation of high-voltage transmission is highly complex and, as a result, generally poorly understood. The complexity is created by separate, but overlapping, jurisdictional authorities of the U.S. federal regulators and those of individual states, districts, and territories. While U.S. federal regulators have authority over stand-alone transmission service and the regional wholesale power markets that use the transmission grid, state regulators have jurisdiction over both (1) retail electricity services that include the distribution network, the retail cost of transmission service, and often generation service; and (2) the permitting of most new transmission facilities within their states’ boundaries. Some of these federal and state regulatory authorities overlap and some of them do not apply to non-jurisdictional transmission providers (such as certain municipal utilities, cooperatives, and federal power marketing agencies) and states (such as Texas) that are not synchronized with the larger regional grid. We summarize this complex structure of transmission regulation in the U.S. and the history of regulations that have created the industry structure and regulatory frameworks that exist today. We provide an overview of how transmission investments are priced and recovered and the planning processes that individual transmission owners and regional grid operators use to plan the necessary expansion of the high-voltage transmission grid. We also point out some of the economic inefficiencies that are created by a combination of balkanized regulatory structures and outdated industry planning practices. |
| JEL: | L51 L94 Q48 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32254&r=reg |
| By: | Johannes Kn\"orr; Martin Bichler; Teodora Dobos |
| Abstract: | The European electricity market is based on large pricing zones with a uniform day-ahead price. The energy transition leads to shifts in supply and demand and increasing redispatch costs. In an attempt to ensure efficient market clearing and congestion management, the EU Commission has mandated the Bidding Zone Review (BZR) to reevaluate the configuration of European bidding zones. Based on a unique data set published in the context of the BZR, we compare various pricing rules for the German power market. We compare market clearing and pricing for national, zonal, and nodal models, including their generation costs and associated redispatch costs. Moreover, we investigate different non-uniform pricing rules and their economic implications for the German electricity market. Our results indicate that the differences in the average prices in different zones are small. The total costs across different configurations are similar and the reduction of standard deviations in prices is also small based on this data set. A nodal pricing rule leads to the lowest total costs. We also analyze the quality of different pricing rules and their differences with respect to the quality of the price signals and the necessary uplift payments. While the study focuses on Germany, the analysis is relevant beyond and feeds into the broader discussion about pricing rules. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2403.09265&r=reg |
| By: | Majah-Leah Ravago (Department of Economics, Ateneo de Manila University); Michael R. M. Abrigo (Philippine Institute of Development Studies); Patrizia Benedicto (ACERD); Nastasha Brigitte Kuan (ACERD); J. Kathleen Magadia (ACERD); Charlotte Marjorie Relos (ACERD); James Roumasset (University of Hawaii) |
| Abstract: | How do congestion and disruptions in transmission impact electricity prices? We investigate the impact of congestion on the wholesale spot market prices and the impact of disruption on residential electricity prices. We utilize time-series transmission node-level data on congestion market prices and combine it with other information on the market network data from the independent electricity market operator for our congestion analysis. Treating congestion as an aberration in the system, we apply impulse response analysis to examine the dynamic and cumulative impact of congestion on wholesale electricity spot prices. To examine the impact of disruption on prices, we use distribution unit data submitted to the industry regulator of the Philippines. We exploit an incident in the Visayas that cuts transmission capacity in half causing a disruption in the system as a natural experiment. We employ a synthetic difference-in-differences methodology and examine the effect of this disruption on consumer electricity prices and market concentration. We find that congestions greatly impact market nodal prices, and the effect persists beyond the time of congestion. The impact of the disruption varies by region at the distribution level, possibly explained by the region’s resources and endowment. |
| Keywords: | Congestion, transmission, electricity prices, Philippines, impulse response function, difference-in-difference |
| JEL: | C99 C13 L14 L94 Q40 Q41 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:agy:dpaper:202401&r=reg |
| By: | Eric K Clemons (University of Pennsylvania); Maximilian Schreieck (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Nantes Univ - IAE Nantes - Nantes Université - Institut d'Administration des Entreprises - Nantes - Nantes Université - pôle Sociétés - Nantes Univ - Nantes Université, TUM - Technische Universität Munchen - Technical University Munich - Université Technique de Munich); Sebastian Hermes (TUM - Technische Universität Munchen - Technical University Munich - Université Technique de Munich); Frantz Rowe (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Nantes Univ - IAE Nantes - Nantes Université - Institut d'Administration des Entreprises - Nantes - Nantes Université - pôle Sociétés - Nantes Univ - Nantes Université, SKEMA Business School); Helmut Krcmar (TUM - Technische Universität Munchen - Technical University Munich - Université Technique de Munich) |
| Abstract: | Dominant American online platforms like Amazon Alexa or Google Assistant have become Life Control Interfaces (LCIs), which facilitate consumers' online interactions and influence what consumers do and do not see and buy. These platforms operate outside of EU regulation, and create significant costs for traditional European firms in a wide range of industries. These platforms can reduce firms' access to customers, can charge for enabling access to customers, or can charge for access to essential data on firms' customers. Since these platforms enjoy monopoly power there is little restraint on their charges, which indirectly increase consumers' prices. We propose that regulators encourage the formation of a consortium to offer a single integrated EU-based Life Control Interface (EuLCI). This consortium would increase the number of EuLCIs from zero to one, and thus would actually increase consumer choice. We call cooperation that enhances rather than limits choice The Cooperation Paradox. |
| Keywords: | Life control interfaces, Online competition, Online cooperation and consortia, Online gateways, Online monopoly regulation, Online platform regulation JEL classification D40 |
| Date: | 2022–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04473840&r=reg |
| By: | Emmanuelle Auriol (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Erling Hjelmeng (UiO - University of Oslo, Norwegian School of Economics and Business Administration - Norwegian School of Economics and Business Administration); Tina Søreide (Norwegian School of Economics and Business Administration - Norwegian School of Economics and Business Administration) |
| Abstract: | By combining approaches from the economic theory of crime and of industrial organization, this paper analyzes optimal enforcement for three different forms of corporate misconduct that harm competition. The analysis shows why corporate crime is more harmful in large markets, why governments have a disinclination to sanction firms whose crime materializes abroad, and why leniency for those who self-report their crime is a complement, and not a substitute, to independent investigation and enforcement. As public authorities rely increasingly on self-reporting by companies to detect cartels, the number of leniency applications is likely to decline, and this is borne out by data. Upon a review of 50 cases of corporate liability from five European countries, competition law enforcement, governed by a unified legal regime, is more efficient than enforcement in bribery and money laundering cases, governed by disparate criminal law regimes. Sanction predictability and transparency are higher when governments cooperate closely with each other in law enforcement, when there are elements of supra-national authority, and when the offense is regulated by a separate legal instrument. Given our results, Europe would benefit from stronger supra-national cooperation in regulation and enforcement of transnational corporate crime, especially for the sake of deterrent penalties against crime committed abroad. |
| Keywords: | Corporate liability, Corruption, Collusion, Antitrust, Money Laundering, Deterrence, Sanctions, Litigation |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04498703&r=reg |
| By: | Zhang Xu; Mingsheng Zhang; Wei Zhao |
| Abstract: | As firms' pricing strategies increasingly rely on algorithms, two concerns have received much attention: algorithmic tacit collusion and price discrimination. This paper investigates the interaction between these two issues through simulations. In each period, a new buyer arrives with independently and identically distributed willingness to pay (WTP), and each firm, observing private signals about WTP, adopts Q-learning algorithms to set prices. We document two novel mechanisms that lead to collusive outcomes. Under asymmetric information, the algorithm with information advantage adopts a Bait-and-Restrained-Exploit strategy, surrendering profits on some signals by setting higher prices, while exploiting limited profits on the remaining signals by setting much lower prices. Under a symmetric information structure, competition on some signals facilitates convergence to supra-competitive prices on the remaining signals. Algorithms tend to collude more on signals with higher expected WTP. Both uncertainty and the lack of correlated signals exacerbate the degree of collusion, thereby reducing both consumer surplus and social welfare. A key implication is that the over-usage of data, both payoff-relevant and non-relevant, by AIs in competitive contexts will reduce the degree of collusion and consequently lead to a decline in industry profits. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2403.06150&r=reg |
| By: | Sylvia Hristakeva; Julie Holland Mortimer; Eric Yde |
| Abstract: | We study the effect of price caps on the provision of costly effort by pharmaceutical firms using variation in drug discounts generated by a price regulation program that allows eligible hospitals to purchase outpatient drugs at steep discounts. These discounts directly affect drug manufacturers’ markups, and may change firms’ incentives to exert promotional effort targeted towards physicians at these hospitals. We find that the effects of price regulation on pharmaceutical firm effort depend crucially on the design of the regulations. Using detailed data on marketing payments from pharmaceutical firms to physicians, we observe that physicians receive 12% fewer promotional payments after their hospitals take up the program. The design of the price caps imply that discounts tend to increase with a drug’s age. Consistent with theoretical predictions, we find that pharmaceutical firms shift promotional payments away from older drugs and towards newer drugs, which are less affected by the price caps. |
| JEL: | I1 I11 L0 L2 M30 M37 M39 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32249&r=reg |
| By: | Agostino Capponi; Chuan Du; Joseph E. Stiglitz |
| Abstract: | We show that supply networks are inefficiently, and insufficiently, resilient. Upstream firms can expand their production capacity to hedge against supply and demand shocks. But the social benefits of such investments are not internalized due to market power and market incompleteness. Upstream firms under-invest in capacity and resilience, passing-on the costs to down-stream firms, and drive trade excessively towards the spot markets. There is a wedge between the market solution and a constrained optimal benchmark, which persists even without rare and large shocks. Policies designed to incentivize capacity investment, reduce reliance on spot markets, and enhance competition ameliorate the externality. |
| JEL: | D21 D24 D25 D43 D85 E23 L13 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32221&r=reg |
| By: | Matthew Gibson (Williams College and IZA) |
| Abstract: | Adam Smith alleged that employers often secretly combine to reduce labor earnings. This paper examines an important case of such behavior: illegal no-poaching agreements through which information-technology companies agreed not to compete for each other’s workers. Exploiting the plausibly exogenous timing of a U.S. Department of Justice investigation, I estimate the effects of these agreements using a difference-in-difference design. Data from Glassdoor permit the inclusion of rich employer- and job-level controls. On average the no-poaching agreements reduced salaries at colluding firms by 5.6 percent, consistent with considerable employer market power. Stock bonuses and job satisfaction were also negatively affected. |
| Keywords: | No-poach agreement, employer market power, Silicon Valley, tech companies, Glassdoor, compensation |
| JEL: | J42 K42 L41 K21 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:upj:weupjo:24-398&r=reg |
| By: | Ashenafi Biru (RMIT University - Royal Melbourne Institute of Technology University); Pia Arenius (EM - EMLyon Business School); Garry Bruton (TCU - Texas Christian University, JLU - Jilin University); David Gilbert (Monash university) |
| Abstract: | This research investigates how entrepreneurs in an early-stage market economy decide their level of compliance with formal rules and finds the manner in which they interact with government officials to operate on a continuum of formality. Focusing on the nonmarket strategy approaches entrepreneurs employ to establish relationships with government officials, we build a model that shows how entrepreneurs adopt strategies aligned with their firm's level of formality, spanning low to high formality practices. We draw on qualitative interview data from entrepreneurs who exhibit varying levels of compliance with state-provided rules and guidelines. We inductively theorize that deciding the firms' level of formality involves strategic interaction approaches with government officials responsible for rule enforcement. Our findings highlight that the interaction strategies entrepreneurs use hinge on the political capital they possess, eliciting the desired response from government officials, and dissuading the officials from enforcing formal rules or imposing sanctions for informality. We offer theoretical and policy implications for future work on the nuances of firm formality and the interaction between entrepreneurs and government officials. |
| Keywords: | business-government interaction, early-stage market economy, firm formalization, nonmarket strategy, regulatory enforcement |
| Date: | 2024–03–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04493248&r=reg |
| By: | H. Burcu Gurcihan Yunculer; Cagri Sarikaya |
| Abstract: | This paper investigates the link between profit margins and cost pass-through to producer prices for the manufacturing sector in Türkiye. Using sector-level panel data, we show that pass-through is lower in industries with higher profit margins in line with the theory that predicts that stronger competition leads to greater pass-through. The impact of cost shocks is found to be more muted for export-oriented industries. In contrast, it is stronger for industries with higher import intensity and foreign currency leverage. We also test the significance of market concentration measures in explaining cost pass-through as alternative indicators of market power. While the dispersion of profit rates is found to be an important source of the differentiation in cost pass-through across sectors, market concentration measures do not have significant impact. |
| Keywords: | Producer prices, Cost pass-through, Profit margins, Market power, Market concentration |
| JEL: | C23 D40 E31 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:2404&r=reg |
| By: | Karimov, Nodirbek; Kara, Alper; Downing, Gareth; Marqués-Ibáñez, David |
| Abstract: | We examine rating behaviour after the introduction of new regulations regarding Credit Rating Agencies (CRAs) in the European securitisation market. Employing a large sample of 12, 469 ABS tranches issued between 1998 and 2018, we examine the information content of yield spreads of ABS at the issuance and compare the pre- and post-GFC periods. We find that the regulatory changes have been effective in tackling conflicts of interest between issuers and CRAs in securitisation. Rating catering seems to have disappeared in the post-GFC period. Yet we see limited effectiveness on rating shopping. It follows that rating over-reliance might be an issue, especially for investors of higher-quality ABS. JEL Classification: G21, G28 |
| Keywords: | asset-backed securities, credit rating agencies, Europe, rating catering, rating inflation, rating shopping, securitisation |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20242920&r=reg |