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on Regulation |
| By: | Kasy, Maximilian (University of Oxford) |
| Abstract: | This chapter discusses the regulation of artificial intelligence (AI) from the vantage point of political economy, based on the following premises: (i) AI systems maximize a single, measurable objective. (ii) In society, different individuals have different objectives. AI systems generate winners and losers. (iii) Society-level assessments of AI require trading off individual gains and losses. (iv) AI requires democratic control of algorithms, data, and computational infrastructure, to align algorithm objectives and social welfare. The chapter addresses several debates regarding the ethics and social impact of AI, including (i) fairness, discrimination, and inequality, (ii) privacy, data property rights, and data governance, (iii) value alignment and the impending robot apocalypse, (iv) explainability and accountability for automated decision-making, and (v) automation and the impact of AI on the labor market and on wage inequality. |
| Keywords: | AI, machine learning, regulation, fairness, privacy, value alignment, explain-ability, automation |
| JEL: | P00 O3 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp16948&r= |
| By: | Budzinski, Oliver; Stöhr, Annika |
| Abstract: | The model of perfect competition is one of the most famous, most important, and most misunderstood concepts in economics. Rather than aiming to be a full-blown model of real-world competitive markets, the perfect competition model isolates the decentralized coordination mechanism inherent in all competitive markets. Coordinating supply and demand is not the only feature of market competition, but it plays a central role regarding to its virtues, and understanding the working mechanism of this coordination is valuable for economic thinking and economic theory. However, the implications of the perfect competition model for competition law and policy are limited. Market power is a multifaceted phenomenon that consists of several distinguishable types. This contribution explains absolute market power (single-firm monopoly and dominance), collective market power, relative market power, and systemic market power. Due to the possibility of merit-driven paths to market power positions (especially disruptive innovations), market power is difficult to prohibit - despite its welfare-reducing effects within the affected markets (anticompetitive effects) and in other parts of the economy and society (rent-seeking, lobbying, distributional issues). Therefore, competition policy usually focuses on preventing non-merit paths to market power (merger control) and on combating the (anticompetitive) abuse of market power. Contestability refers to the openness of markets. More specifically, it is the ability of companies to overcome barriers to entry and exit as well as to expansion on markets. While the original economic theory of contestability defines very strict conditions for perfectly contestable markets, antitrust has employed the term contestability in broader and in varying ways, emphasizing the role of potential competition and potential market entries to discipline the behavior of powerful incumbents on monopoly or dominance markets. Recently, contestability is rising to new prominence as a major goal of the European regulation of digital ecosystems. |
| Keywords: | perfect competition, atomistic competition, coordination of supply and demand, market power, monopoly, market concentration, dominance, digital ecosystems, price setting, economic power, contestability, entry barriers, exit barriers, potential competition, open markets, Digital Markets Act (EU) |
| JEL: | A10 A20 B10 B20 D00 K21 L12 L13 L40 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:tuiedp:296473&r= |
| By: | Michael Grubb (Boston College); Darragh Kelly (Google); Jeroen Niebohr (London School of Economics); Matthew Osborne (University of Toronto); Jonathan Shaw (UK Financial Conduct Authority) |
| Abstract: | At-scale field experiments at major UK banks show that automatic enrollment into “just-in-time” text message alerts reduces unarranged overdraft and unpaid item charges 17–19% and arranged overdraft charges 4–8%, implying annual market-wide savings of £170–240 million. Incremental benefits from additional “early warning” alerts, triggered by low account balances are not statistically significant, although economically significant effects are not ruled out. Prior to the experiments, over half of overdrafting could have been avoided by using lower-cost liquidity available in savings and credit card accounts (FCA, 2018c). Alerts help consumers achieve less than half of these potential savings. |
| Keywords: | overdraft fees, early warning alerts, liquidity |
| JEL: | D14 D18 G21 G28 G51 |
| Date: | 2024–05–08 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:1073&r= |
| By: | Donna, Javier; Pereira, Pedro |
| Abstract: | We discuss a subset of vertical mergers, where the exercise of market power and the efficiencies enabled by a vertical merger reduce rivals’ profits, making rivals’ exit a potentially serious concern. Rivals’ exit can fundamentally alter the welfare analysis of vertical mergers due to the reduction in product variety to consumers and the reduction in the number of competitors that would otherwise exert downward pricing pressure. An exit-inducing vertical merger might re- duce welfare even if it is a welfare-enhancing merger absent exit. We present a theoretical framework to analyze vertical mergers that focuses on the possibility and consequences of exit, discuss the antitrust implications for merger evaluation, and provide examples. We argue that the possibility of rivals’ exit should be an integral part of the analysis of vertical mergers. |
| Keywords: | Antitrust, Vertical Mergers, Rivals’ Exit, Double Marginalization, Merger Evalu- ation, Competition Policy. |
| JEL: | K21 K41 L42 L44 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:121045&r= |
| By: | Hernando, Andres; Villena, Mauricio; Apablaza, Valentina |
| Abstract: | We put forward an optimal bidding mechanism for a bundle of power transmission infrastructure works. Specifically, the regulator auctions two works altogether: one is to be developed and operated by the winning bidder, while the other is an owner-operated and financed expansion of an existing work. Participants bid jointly for both contracts, and the package is awarded based on the lowest total bid. The costs are divided into a common developing part for all participants and a private part related to financing. The optimal bidder offers the expected value of the costs, adjusted for the cost advantage over the second lowest bidder. This approach efficiently allocates the works to the firm with the lowest combined costs. However, rents persist due to the informational and cost advantage in financing. When a bidder expects higher costs, it requests a higher payment, which reduces its chances of winning the bid. |
| Keywords: | Auctions, Procurement bidding, Infrastructure works bundling, Electric transmission infrastructure |
| JEL: | D44 H42 H57 L94 |
| Date: | 2023–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120849&r= |
| By: | Michiel Kenis; Vladimir Dvorkin; Tim Schittekatte; Kenneth Bruninx; Erik Delarue; Audun Botterud |
| Abstract: | Policy makers are formulating offshore energy infrastructure plans, including wind turbines, electrolyzers, and HVDC transmission lines. An effective market design is crucial to guide cost-efficient investments and dispatch decisions. This paper jointly studies the impact of offshore market design choices on the investment in offshore electrolyzers and HVDC transmission capacity. We present a bilevel model that incorporates investments in offshore energy infrastructure, day-ahead market dispatch, and potential redispatch actions near real-time to ensure transmission constraints are respected. Our findings demonstrate that full nodal pricing, i.e., nodal pricing both onshore and offshore, outperforms the onshore zonal combined with offshore nodal pricing or offshore zonal layouts. While combining onshore zonal with offshore nodal pricing can be considered as a second-best option, it generally diminishes the profitability of offshore wind farms. However, if investment costs of offshore electrolyzers are relatively low, they can serve as catalysts to increase the revenues of the offshore wind farms. This study contributes to the understanding of market designs for highly interconnected offshore power systems, offering insights into the impact of congestion pricing methodologies on investment decisions. Besides, it is useful towards understanding the interaction of offshore loads like electrolyzers with financial support mechanisms for offshore wind farms. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.13169&r= |
| By: | Simshauser, P.; Gohde, N. |
| Abstract: | All credible scenarios of a decarbonising Australian power system with high levels of renewables rely on a portfolio of flexible, dispatchable storage and firming assets. Given our current understanding of costs and prices, such portfolios are thought to include short-duration batteries, intermediate-duration pumped hydro, with gas turbines providing the last line of defence. The stochastic intermittency of wind, the synchronicity of rooftop and utility-scale solar PV, and stubbornly inelastic aggregate final demand – at least over the medium term – only serve to underscore this point. Wind and solar output need to be moved through space (networks) and time (storage). The storage asset class with by far the highest energy density, pumped hydro, appears to be facing structurally high capital costs with most recent estimates given via high profile projects under development (viz. Snowy 2.0, Borumba) being ~$5000-$6000/kW in real terms. Yet under-development of pumped hydro will result in sharply rising renewable curtailment rates and a greater reliance on gas turbines – with the latter likely to be intractable. In this article, we focus on material reductions in the carrying cost of capital-intensive, ultra-long-lived pumped hydro assets through a 3-Party Covenant (3PC) financing structure between governments, the consumer base and plant investors. Our modelling suggests this reduces the annual capital costs and imputed cost of storage during operations by more than 35%. Our 3PC model is orchestrated through a semi-regulated business model and issuance of 10-year Commonwealth Government Bonds with a zero ‘credit spread’ – all of which are critical to minimise costs to consumers. |
| Keywords: | Pumped hydro, energy storage, energy-only markets |
| JEL: | D52 D53 G12 L94 Q40 |
| Date: | 2024–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2425&r= |
| By: | Bahl, Utsav |
| Abstract: | Scholars from both sides of the Atlantic have noted a perceived divergence in the objectives and practice of competition policy in the US and the EU. This paper investigates the reasons behind such a divergence focusing on ideology, legal systems, lobbying, and foreign policy. The most compelling reasons behind the differences we see in competition policy across the US and the EU is due to the US’ more laissez-fair approach to the economy and, as a byproduct, its legal system. With a particular emphasis placed on Big Tech, it is noted that differences in competition policy are exacerbated in this industry in large part due to the relative inefficacy of Big Tech to lobby the EU in comparison to their relative success in the US. This paper ends by discussing how foreign policy aims have recently begun to shape competition policy in both the US and the EU and the potential implications this could have going into the future. |
| Date: | 2024–05–12 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:6vzqp&r= |
| By: | Rieger-Fels, Markus; Schlepphorst, Susanne; Dienes, Christian; Akalan, Rodi; Icks, Annette; Wolter, Hans-Jürgen |
| Abstract: | Die Politik verfolgt mit einer Reihe an regulatorischen Maßnahmen das Ziel, den Klimaschutz voranzutreiben. Die Wirksamkeit dieser Maßnahmen hängt auch von der Reaktion der regulierten Unternehmen und damit von deren Akzeptanz der Regulierung ab. Die vorliegende Studie untersucht die Akzeptanz verschiedener Regulierungsmaßnahmen, die zum Klimaschutz beitragen sollen. Es werden Aspekte der Regulierung identifiziert, die der Akzeptanz abträglich sind, sowie Möglichkeiten erörtert, dem entgegenzuwirken. |
| Abstract: | Politicians seek to advance climate protection with a series of regulatory measures. The effectiveness of these measures depends on the reaction of the regulated companies and thus on their acceptance of the regulation. This study examines the acceptance of various regulatory measures that are intended to contribute to climate protection. It identifies aspects of regulation that are detrimental to acceptance and discusses ways of counteracting this. |
| Keywords: | Klimaschutz, Regulierung, Akzeptanz, Bürokratie, Emissionshandel, Climate protection, regulation, acceptance, red tape, emissions trading |
| JEL: | H23 K32 Q58 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifmmat:296488&r= |
| By: | Sara Calligaris; Chiara Criscuolo; Luca Marcolin |
| Abstract: | Relying on a novel dataset which combines balance sheet data on firms, patents, and industry-level proxies of technology for 25 countries in the period 2001-2014, we document an increase in mark-ups over time, mainly driven by firms in the top half of the mark-up distribution, and a significant and increasing "mark-up gap" between firms in digital intensive and less digital intensive industries. Second, we show that the intangible components of the digital transformation, matter above all others for firm mark-up, and that this is not explained by the industry's fixed-cost structure, concentration, openness to trade and product market regulation. |
| Keywords: | mark-ups, market power, digitalisation, intangible assets |
| Date: | 2024–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1994&r= |
| By: | Lisa Bruttel (University of Potsdam, Berlin School of Economics, CEPA); Maximilian Andres (University of Potsdam, Berlin School of Economics, CEPA) |
| Abstract: | While the economic harm of cartels is caused by their price-increasing effect, sanctioning by courts rather targets at the underlying process of firms reaching a price-fixing agreement. This paper provides experimental evidence on the question whether such sanctioning meets the economic target, i.e., whether evidence of a collusive meeting of the firms and of the content of their communication reliably predicts subsequent prices. We find that already the mere mutual agreement to meet predicts a strong increase in prices. Conversely, express distancing from communication completely nullifies its otherwise price-increasing effect. Using machine learning, we show that communication only increases prices if it is very explicit about how the cartel plans to behave. |
| Keywords: | cartel, collusion, communication, machine learning, experiment |
| JEL: | C92 D43 L44 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:pot:cepadp:77&r= |
| By: | Sánchez, Mariola; Nerja, Adrian |
| Abstract: | In this paper, we compare the scenarios of exclusive licenses and cross-licenses under the existence of partial vertical integration. To do this, a successive duopoly model is proposed, with two owners and two firms competing in a differentiated product market. Each technology owner has a share in one of the competing firms, so that competition is also extended to the upstream R&D sector. We propose a novel analysis where differences in the size of their innovation process are allowed, extending the results in Sánchez et al. (2021). We find that the cross-licensing scenario is preferred when the size of the innovation is small; this occurs regardless of the participation in the competing companies and how many innovate. If the innovation is very large, the owners may be better off with exclusive licenses. |
| Keywords: | Patent Licensing; Exclusive licenses; Market for technology; Asymmetric innovation |
| JEL: | L13 L24 O33 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120829&r= |