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on Regulation |
| By: | Koji Ishibashi (Department of Economics, Keio University) |
| Abstract: | This paper explores how firms respond in designing two-part tariffs to consumers' biased beliefs about their preferences. Biased consumers could be either overpessimistic when they underestimate their true demand or overoptimistic when they overestimate. Assuming that unbiased consumers consist of two types with high and low valuations, I show that the effect of the presence of biased consumers on unbiased consumers depends on market structure. The monopolist wants to educate overpessimistic consumers while may not want to educate overoptimistic consumers. Alternatively, in competition, firms do not have the incentive to educate any biased consumers. A debiasing policy for either overpessimistic or overoptimistic consumers unambiguously improves social welfare in competition but could harm social welfare in monopoly. |
| Keywords: | biased belief, overoptimistic consumers, overpessimistic consumers, two-part tariff |
| JEL: | D42 D43 D91 L12 L13 |
| Date: | 2024–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:keo:dpaper:2024-009&r=reg |
| By: | Axelle Arquie (CEPII); Malte Thie (CEPII and Université Paris Dauphine) |
| Abstract: | We explore how, in the French manufacturing sector, producer prices vary with market power during a severe episode of energy price hikes (between January 2020 and February 2023). Our work provides some empirical evidence in favor of a role for firms' market power in explaining inflation, and in favor of the "sellers' inflation" hypothesis (Weber and Wasner (2023)): in less competitive sectors, firms could use the energy price hike to increase their prices more than warranted by actual changes in costs. Using a rich dataset on French manufacturing firms' balance sheets, we first estimate markups at the firm-level, and aggregate them at the sectoral level. We then study the response of the producer price index (PPI) to a change in spot energy prices, depending on average market power within sectors. We show that, in sectors with higher markups, prices increase relatively more: in the least competitive sector, firms pass through up to 110% of the energy shock, implying an excess pass-through of 10 percentage points. In addition, we find that the association between markup and pass-through is even higher when markup dispersion is low, consistent with the argument that firms engage in price hikes when they expect their competitors to do the same. |
| Keywords: | Inflation, Markups |
| JEL: | E31 F4 L11 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:imk:wpaper:220-2023&r=reg |
| By: | Simonetta Vezzoso |
| Abstract: | The Digital Markets Act (DMA) aims to ensure contestability and fairness in digital markets, particularly focusing on regulating Big Tech companies. The paper explores the DMA's capacity to address both current and future challenges in digital market contestability and fairness, spotlighting the trend towards platform integration and the potential rise of "super-apps" akin to WeChat and KakaoTalk. Specifically, it investigates WhatsApp, owned by Meta, as a gatekeeper that might expand its service offerings, integrating additional functionalities like AI and metaverse technologies. The paper discusses whether the DMA's obligations, such as mandated interoperability and data portability, can mitigate the emergent risks to market fairness and contestability from such integrations. Despite recognizing that the DMA has the potential to address many issues arising from platform integration, it suggests the necessity for adaptability and a complementary relationship with traditional antitrust law to ensure sustained contestability and fairness in evolving digital markets. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.04506&r=reg |
| By: | Kei Kawai; Jun Nakabayashi |
| Abstract: | We study the effectiveness of firms' compliance programs by conducting a field experiment in which we disclose to a subset of Japanese firms that the firm is potentially engaging in illegal bid-rigging. We find that the information that we disclose affects the bidding behavior of the treated firms: our test of bid-rigging is less able to reject the null of competition when applied to the bidding data of the treated firms after the intervention. We find evidence that this change is not the result of firms ceasing to collude, however. We find evidence suggesting that firms continue to collude even after our intervention and that the change in the bidding behavior we document is the result of active concealment of evidence by cartelizing firms. |
| JEL: | K21 L41 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32347&r=reg |
| By: | Paul Koh |
| Abstract: | Standard empirical tools for merger analysis assume price data, which may not be readily available. This paper characterizes sufficient conditions for identifying the unilateral effects of mergers without price data. I show that revenues, margins, and revenue diversion ratios are sufficient for identifying the gross upward pricing pressure indices, impact on consumer/producer surplus, and compensating marginal cost reductions associated with a merger. I also describe assumptions on demand that facilitate the identification of revenue diversion ratios and merger simulations. I use the proposed framework to evaluate the Staples/Office Depot merger (2016). |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.07684&r=reg |
| By: | Scott L. Fulford; Joanna Stavins |
| Abstract: | In consumer credit, “ability‐to‐pay” (ATP) rules require lenders to consider whether the consumer can repay a loan without experiencing undue hardship. ATP rules have recently been implemented or considered in many countries and markets. Using a large panel of credit card accounts, we study the 2009 Credit Card Accountability Responsibility and Disclosure (CARD) Act’s ATP rule and its effect, if any, on the US credit card market. We find that the rule appears to have had no effect on bank credit decisions because actual credit limits are almost always substantially lower than reasonable ATP limits. We examine other factors that may explain banks’ credit decisions. Nearly 27 percent of consumer accounts that had a change in cardholder income received a credit limit increase of $100 or more in the same month as the income change. Most credit limit increases followed an income increase, although 19 percent of the instances of an income decrease also were followed by a credit limit increase. Most credit limit increases occurred without cardholders providing banks with income updates. The magnitude of the income change coefficient when an income update occurred is estimated to be nearly zero. We conclude that after the origination of an account, the direction and size of the account holder’s income updates are largely unimportant for credit limit changes from either a regulatory or bank profitability standpoint. |
| Keywords: | CARD Act; credit cards; credit limits; ability to pay |
| JEL: | D14 E42 G21 G51 |
| Date: | 2024–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:98175&r=reg |
| By: | Carl-Christian Groh,; Jonas von Wangenheim |
| Abstract: | We study the competitive effects of personalized pricing in horizontally differentiated markets with search frictions. We integrate the possibility of first degree price discrimination into the classic Wolinsky (1986) framework of consumer search. If all consumers are rational, personalized pricing leads to higher consumer surplus if and only if there are no search frictions. If all consumers are unaware that firms price discriminate, i.e. are naive as in Eyster and Rabin (2005), this result is reversed: Personalized pricing improves consumer surplus unless search costs are prohibitive. |
| Keywords: | search, price discrimination, welfare, bounded rationality, anonymity |
| JEL: | D21 D43 D83 D90 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_527&r=reg |
| By: | Grégroire Massé (Université Paris 1 Panthéon-Sorbonne, Centre d'Economie de la Sorbonne) |
| Abstract: | This paper questions the difficulty of quantifying French notaries’ regulatory evolutions with existing regulatory indicators. Whereas the notary profession faced a major transformation with high competitive outcomes, regulatory indicators that initiated this process did not change. Does this mean that French notaries do not belong to the European deregulation process of professional services? In this paper, we aim to consider the more general issue of assessing professional services’ regulation and question both indexes’ internal and external validity. We show that (1) regulatory indicators used to promote professional deregulation in Europe belong to a “flat world” paradigm, and that (2) they are inconsistent in assessing evolutions resulting from the European Open Method of Coordination. We process in two steps. First, we identify an “index framework” which includes regulatory indicators from different indexes-based policies. As they have common structure and aims, their methodology relies on a full-comparability paradigm, with the idea that regulatory “best practices” from different countries and professions could be implemented in any professions or countries. Moreover, this comparability perspective echoes the Open Method of Coordination, namely a policy method used in the European context of regulatory convergence. However, when we consider their applicability in the French context, we note indexes’ inability to compare professional regulations: regulatory indicators only quantify a small part of professional rules, and cannot explain some dynamic evolutions. They belong to a “flat world” paradigm, with an underlying theoretical economic model restricting the regulatory scope. We then try to define precisely this theoretical model in order to grasp its consequences on policymaking. If regulatory indicators do frame the economic assessment of regulation, we aim to make their model consistent in a general equilibrium perspective. We see that indicators’ theoretical regulatory model is a contestability model of non-regulation, which cannot justify piecemeal deregulations. This theoretical model advocates for a total deregulation in professional services, whereas the Open Method of Coordination had only promoted piecemeal deregulation policies. Beyond this external inconsistency, our conclusion is that – paradoxically – the underlying theoretical model does not apprehend law, and can only advocate for a legal revolution instead of a regulatory evolution. Therefore, we support a more law-grounded approach for regulatory quantification, and advocate for new indexes in the quantification of Open Method of Coordination’s effects |
| Keywords: | Regulation Indexes (Regulatory Indicators); Legal Services; Professional competition; Comparative law and economics |
| JEL: | J44 L51 D45 K23 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:24004&r=reg |
| By: | Giacomo Calzolari; Leonardo Felli; Johannes Koenen; Giancarlo Spagnolo; Konrad Stahl |
| Abstract: | Using data from a unique survey on all buyers and crtical suppliers in German automotive production, we explore the role of trust in long-term procurement relationships. Higher trust leads to higher quality of the automotive parts, and to more competition among suppliers. These effects are significant for low-tech parts only, and not for high tech ones, even when the buyer procures parts from the same supplier. We rationalize these unexpected findings within a relational contracting model, where technology-specific differences in the cost of switching suppliers determine the bargaining power in part-specific procurement relationships. |
| Keywords: | Relational Contracts, Hold-up, Buyer-Supplier Contracts, Bargaining Power |
| JEL: | D86 L14 L62 O34 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_530&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); Alice Mesnard (University of London [London]); Tiffanie Perrault (McGill University = Université McGill [Montréal, Canada]) |
| Abstract: | We model consumer choices for recreational cannabis in a risky environment and its supply under prohibition and legalization. While legalization reduces the profits of illegal providers, it increases cannabis consumption. This trade-off can be overcome by combining legalization with sanctions against the black market, and improvements to the quality of legal products. Numerical calibrations highlight how a policy mix can control the increase in cannabis consumption and throttle the illegal market. In the US, the eviction prices we predict to drive dealers out of business are much lower than the prices of legal cannabis in most of the states that opted for legalization, leaving room for the black market to flourish. Analyzing the compatibility of several policy goals sheds light on the less favorable outcomes of recent legalization reforms and suggests a new way forward. |
| Keywords: | recreational cannabis, legalization, crime, policy, regulation |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04234940&r=reg |
| By: | Patrick Rey; Yossi Spiegel; Konrad Stahl |
| Abstract: | We study the feasibility and profitability of predtion in a dynamic environment, using a parsimonious infinite-horizon, complete information setting in which an incumbent repeatedly faces potential entry. When a rival enters, the incumbent chooses whether to accommodate or predate it; the entrant then decides whether to stay or exit. We show that there always exists a Markov perfect equilibrium, which can be of three types: accommodation, monopolization, and recurrent predation. We then analyze and compare the welfare effects of different antitrust policies, accounting for the possibility that recurrent predtion may be welfare improving. |
| Keywords: | predation, accommodation, entry, legal rules, Markov perfect equilibrium |
| JEL: | D43 L41 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_529&r=reg |
| By: | Hernández, Carlos Eduardo; Cantillo-Cleves, Santiago |
| Keywords: | Economics, Applied Economics, Econometrics, Price controls, Price floors, Intermediation, Market power, Incidence, Transportation, Economic Theory, Applied economics, Economic theory |
| Date: | 2024–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:ucsdec:qt0209r817&r=reg |
| By: | Matej Lorko; Tomas Miklanek; Maros Servatka |
| Abstract: | While nudges have recently gained popularity, many nudging interventions fail, and the effects of successful ones are often short-lived. We conjecture that the success of a nudge depends on how it interacts with the underlying economic incentives that determine the payoffmaximizing behavior of the decision-maker. For example, in the domain of tax compliance, a nudge is likely to be effective only if it is financially optimal for the taxpayer to pay the tax. To test our conjecture, we run a multi-period experiment in which we manipulate tax audit probability, and nudge participants to report their income. In addition, we vary how often the nudge appears, to test whether more frequent nudging increases long-run compliance. We observe that the first application of a nudge has a positive immediate effect on income reporting irrespective of whether it is optimal to comply or not. However, subsequent nudges increase income reporting only if the nudge is aligned with the taxpayer’s incentives. More frequent nudging in the direction opposite to incentives yields no effects on long-run compliance. Policy implications are discussed. |
| Keywords: | nudge, incentives, tax compliance, experiment |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp777&r=reg |