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on Regulation |
| By: | Massimo Motta; Volker Nocke; Martin Peitz |
| Abstract: | With the increased risks of international trade frictions and geopolitical disruptions merger control that does not account for such risks may be too lenient. This article provides a proposal on how competition authorities should systematically assess mergers based on a risk assessment and how they should adjust their market share and UPP analysis. The authors also argue that the approach fits well into recent developments of merger analyses in the European Union. |
| Keywords: | merger control, market shares, UPP, resilience, geopolitical risks |
| JEL: | K21 L40 L13 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_568&r= |
| By: | Dirk Bergemann (Yale University); Benjamin Brooks (University of Chicago); Stephen Morris (Massachusetts Institute of Technology) |
| Abstract: | Producers of heterogeneous goods with heterogeneous costs compete in prices. When producers know their own production costs and the consumer knows their values, consumer surplus and total surplus are aligned: the information structure and equilibrium that maximize consumer surplus also maximize total surplus. We report when alignment extends to the case where either the consumer is uncertain about their own values or producers are uncertain about their own costs, and we also give examples showing when it does not. Less information for either producers or consumer may intensify competition in a way that benefits the consumer but results in inefficient production. We also characterize the information for consumer and producers that maximizes consumer surplus in a Hotelling duopoly. |
| Date: | 2024–05–29 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2373r1&r= |
| By: | Gert Brunekreeft; Dierk Bauknecht; Martin Palovic; Anna Pechan; Franziska Flachsbarth; Matthias Koch |
| Abstract: | Following liberalization and especially the energy transition, energy infrastructures are developing rapidly and significantly. Electricity networks are expanded to facilitate connection of renewable energies and new load such as heat pumps and electric mobility. On the one hand, gas networks are preparing for a phase-out and, on the other hand, for a possible repurposing for transportation of hydrogen. At a communal level, the heat supply moves towards heat pumps and district heating, both in turn affecting electricity and gas infrastructure. Lastly, infrastructure for hydrogen and CO2 for CCS are being developed. These developments affect various stages within the energy sectors. These simultaneous and interactive developments require coordination between and within the different energy infrastructure. Improving the coordination of energy infrastructures has been coined Whole System Approach (WSA). In this report, we examine approaches for applying the Whole System Approach. Often applying the WSA may require an explicit policy, possibly supported by state action. In this report, we call these policies measures to apply the WSA policy options. |
| Keywords: | electricity, network, regulation, whole-system approach |
| JEL: | L51 L94 L43 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:bei:00bewp:0047&r= |
| By: | Minh Ha-Duong (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École des Ponts ParisTech - Université Paris-Saclay - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | This article discusses the proposed introduction of a two-part tariff in Vietnam's electricity markets. A two-part tariff in the electricity sector refers to a billing mechanism where consumers are charged based on two distinct components: capacity and consumption. The capacity charge is determined by the maximum power capacity (in kilowatts, kW) that a consumer can draw from the system at any given moment. This is akin to paying a rental fee for accessing power up to a certain limit. The consumption charge, on the other hand, is based on the actual amount of electricity used by the consumer over a period, measured in kilowatt-hours (kWh). It examines how a two-part tariff, including capacity payments, could be applied to Vietnam's wholesale electricity market to support investment in dispatchable generation like gas power plants. These plants are needed to complement the growing share of variable renewable energy sources like wind and solar. The article will draw on international experiences, such as the recent introduction of capacity payments for coal power plants in China, to explore the potential benefits and design considerations for such a mechanism. |
| Keywords: | capacity payments, Vietnam, electricity market |
| Date: | 2024–05–20 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04607117&r= |
| By: | Evan Calford |
| Abstract: | This paper documents a policy proposal that improves consumer welfare in the sports betting industry by changing the framing of betting odds. On the demand side the proposal increases price salience, particularly for multibets, and acts as a classic behavioral nudge. On the supply side, the same change in framing increases the dimension of the pricing vector and, therefore, introduces a new dimension of price competition. In particular, the policy change introduces price competition into the market for multibets, reduces the current extraordinarily high profit margin on multibets, reduces non-price competition, and decreases demand for advertising from sports betting firms. |
| Keywords: | Sports betting, transparent pricing, nudges, market structure |
| JEL: | D47 D91 Z28 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:acb:cbeeco:2024-700&r= |
| By: | Maija Halonen-Akatwijuka (University of Bristol); Carol Propper (Imperial College London, Monash University, IFS and CEPR) |
| Abstract: | This paper examines the implications of consumer heterogeneity for the choice of competition and monopoly in public services delivery. In a setting with motivated providers who favour one type of service user over another, we show that competition can raise average quality. However, this may be at the expense of the minority type of user if the providers favour the majority type. Then an inequity averse regulator may protect the minority by not introducing competition. Alternatively, if the providers favour the minority type, the regulator may introduce competition to incentivize the providers to pay attention to the less rewarding majority type. |
| Keywords: | Public services, Competition, Quality, Inequity aversion |
| JEL: | H11 I11 I14 I24 L31 |
| Date: | 2024–03 |
| URL: | https://d.repec.org/n?u=RePEc:mhe:chemon:2024-03&r= |
| By: | Coppik, Jürgen |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:diceop:299231&r= |
| By: | Peter B. Dixon; Maureen T. Rimmer |
| Abstract: | Since the 1990s, there have been rapid increases in concentration ratios in many industries in the U.S., Australia and, we suspect, in other countries. Despite this, applications of GTAP (the world's most widely used global economic model) continue to be based on pure competition or Melitz-style Large-Group Monopolistic Competition (LGMC). In either case, all firms are small, there is free entry, and industries make zero pure profits. Markusen challenges modellers to move to Small-Group Monopolistic Competition (SGMC) in which industries have high levels of concentration and firms are aware of the likely behaviour of their rivals. We create a version of GTAP in which some industries are modelled as SGMC. We make two generalization of earlier Melitz-LGMC specifications. First, we treat the perceived elasticity of demand by firms in SGMC industries as a variable. In our SGMC specification, mark-ups over marginal costs, which depend on perceived elasticities, fall when these elasticities are reduced by pro-competition policies. Second, we allow for sticky adjustment of the number of firms in an industry, and simulate situations in which entry is blocked and incumbent firms make excess profits. |
| Keywords: | Small-group monopolistic competition, GTAP, Melitz and Markusen, Wage rates and pure profits |
| JEL: | D43 D33 D58 C68 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:cop:wpaper:g-347&r= |
| By: | OECD |
| Abstract: | Ubiquitous access to high-quality broadband connectivity is crucial for digital transformation, economic growth, and productivity. The challenge lies in ensuring sustained long-term investments in broadband infrastructure. This report examines the diversity of actors in the financial landscape of connectivity infrastructure, highlighting trends in broadband network financing and future implications. It focuses on five important groups that invest in and provide funding for broadband infrastructure: communication operators, tower companies, big technology companies, financial asset managers, and the public sector. Communication operators saw revenue growth from 2008 to 2022, but their investment decisions going forward will depend on future returns and interest rates. Meanwhile, tower companies, big technology companies, and financial asset managers are reshaping the connectivity landscape. Finally, the report looks at the public sector, which plays an important role in enabling investments in communication infrastructure. |
| Keywords: | broadband connectivity, broadband infrastructure financing |
| Date: | 2024–06–20 |
| URL: | https://d.repec.org/n?u=RePEc:oec:stiaab:365-en&r= |
| By: | Benatti, Nicola; Groiss, Martin; Kelly, Petra; Lopez-Garcia, Paloma |
| Abstract: | We examine the extent to which environmental regulation affects innovation and which policy types provide the strongest incentives to innovate. Using a local projection framework, we estimate the regulatory impact on patenting activity over a five-year horizon. As a proxy for environmental policy exposure, we estimate firm-level greenhouse gas emissions using a machine learning algorithm. At the country-level, policy tightening is largely associated with no statistically significant change in environmental technology innovation. At the firm-level, however, environmental policy tightening leads to higher innovation activity in technologies mitigating climate change, while the effect on innovation in other technologies is muted. This suggests that environmental regulation does not lead to a crowding-out of non-clean innovations. The policy type matters, as increasing the stringency of technology support policies and non-market based policies leads to increases in clean technology patenting, while we do not find a statistically significant impact of market-based policies. JEL Classification: O44, Q52, Q58 |
| Keywords: | emissions, environmental regulation, euro area, innovation, Porter hypothesis |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20242946&r= |
| By: | Heresi, Rodrigo |
| Abstract: | While there is widespread evidence of increasing markups in the United States and other developed economies in the last several decades, little is known about that evolution in developing economies, particularly Latin American countries. Using a harmonized dataset on listed firms from 70 countries in the period 2000-2022, I document four stylized facts about market power--measured as price-cost markups--in the six largest Latin American economies from a worldwide perspective. First, average markups in LAC are high relative to other emerging and developed economies, although they have slightly declined from prevailing levels during the commodity boom period. Second, aggregate markup dynamics are primarily driven by already high-markup firms in the top decile of the markup distribution, with little changes in the market power measured for the remaining nine deciles. Third, in contrast to the prediction of most theories about endogenously variable markups, I document a nonlinear relationship between firm-level markups and size, which is significantly negative for most of the size distribution and significantly positive for very large corporations. Fourth, the relationship between markups and investment depends heavily on the markup level. For a typical firm with median market power, a 1% increase in its markup implies a 0.86% rise in the investment rate. In contrast, for firms at the 99th percentile of the markup distribution, a 1% increase in its markup implies a -0.44% reduction in investment. |
| Keywords: | Market power;pricing;Firm size;TFP |
| JEL: | D22 D24 L11 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:13610&r= |
| By: | Amuah, Donald; Amadi, Chibuzo; Telford, Brian |
| Abstract: | This study examines the impact of two significant regulatory reforms, the Banking Reform Act (2013) and the Financial Services and Markets Act (2023), on the market value of the four largest retail banks in the UK. The study aims to assess how these reforms, designed to enhance financial stability and consumer protection, affected the stock returns of these major financial institutions. The research employs an event study methodology, a well-established approach in financial economics, to analyse the stock market reactions to key legislative events associated with the enactment of both acts. The study focuses on three critical stages in the legislative process: the third reading in the House of Commons, the third reading in the House of Lords, and the Royal Assent. Daily stock price data from 2000 to 2023 is used to calculate abnormal returns, which are then analysed for statistical significance using the Wilcoxon signed-rank test. The findings reveal that the Banking Reform Act 2013, while not significantly impacting individual bank returns, had a collective negative effect on the stock prices of the four banks. This suggests that the market perceived the reforms as potentially reducing bank profitability due to increased regulatory burdens and structural changes. Conversely, the Financial Services and Markets Act 2023, enacted a decade later, showed a positive and significant effect on the collective stock returns of the banks. This indicates a more favourable market sentiment towards the post-Brexit regulatory framework, potentially due to its focus on maintaining the UK's competitiveness as a global financial centre while ensuring stability. This study contributes to the limited literature on the impact of regulatory reforms on UK banks, particularly in the context of the post-2008 financial crisis landscape and the UK's departure from the European Union. The findings offer valuable insights for policymakers, regulators, and investors by highlighting the nuanced market reactions to different regulatory approaches. The study underscores the importance of considering both short-term and long- term market implications when designing and implementing financial reforms. |
| Keywords: | bank regulation, retail banks, stock market value, Banking Reform Act (2013), Financial Services and Markets Act (2023), event study methodology. |
| JEL: | E58 G14 G18 G21 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121191&r= |
| By: | Tom\'as Aguirre |
| Abstract: | As frontier AI models progress, policy proposals for safe AI development are gaining increasing attention from researchers and policymakers. This paper evaluates the present landscape of integration within the AI supply chain, emphasizing vertical relations and strategic partnerships, with the goal of laying the groundwork to further understand the implications of various governance interventions, including antitrust. The study has two main contributions. First, it maps the AI supply chain by profiling 25 leading companies, examining their 300 pairwise relationships, and noting approximately 80 significant mergers and acquisitions, and 40 relevant antitrust litigation. Second, it offers a conceptual discussion on market definitions and integration drivers, investigating major players like AI labs and chip designers, horizontal integration levels, and vertical relationships among industry leaders. To further understand the strategic partnerships in the industry, we provide three brief case studies, featuring companies such as OpenAI and Nvidia. We conclude by posing open research questions regarding market dynamics and potential governance interventions, such as licensing and safety audits. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.01722&r= |
| By: | Krebs, Tom (University of Mannheim); Weber, Isabella (University of Massachusetts Amherst) |
| Abstract: | In the wake of the global energy crisis, many European countries used energy price controls to fight inflation and to stabilize the economy. Despite its wide adoption, many economists remained skeptical. In this paper, we argue that price controls should be part of the policy toolbox to respond to shocks to systemically important sectors because not using them can have large economic and political costs. We put forward our arguments in two steps. In a first step, we analyze the impact on the German economy and society of the global energy crisis that followed Russia's attack on Ukraine in February 2022. Our analysis shows that energy shocks matter. Specifically, the one-year GDP loss of the energy crisis 2022 amounts to 4 percent and is comparable to the short-run output losses during the COVID-19 crisis 2020 and the global financial crisis 2008. In addition, during the energy crisis 2022 inflation rates rose dramatically and real wages dropped more than in any other year in post-war Germany. There are also clear signs that the crisis is causing severe long-term economic damage (hysteresis effects). At the beginning of 2024, GDP is 7 percent and real wages are 10 percent below the pre-COVID-19 trend. We argue that the German government handled the immediate response to the energy shock well, but subsequently waited too long to introduce an energy price brake in 2022. This failure to act decisively in response to heightened economic insecurity coincided with a strong rise of the approval rates of the far-right AfD in the summer of 2022. We also show that the German energy price brake was an effective price stabilization policy for households, but did not protect the industrial base appropriately making it more likely that the German economy will continue to stagnate. In a final step, we turn to the use of price controls as an optimal policy response to an energy shock within a general equilibrium framework. We develop a simple production model with an energy sector and shows that price controls are socially optimal whenever self-fulfilling expectations generate endogenous price uncertainty in the wake of an energy shock. We also link our analysis to the so-called sunspot literature that was developed in the 1980s as a response to the rational-expectations revolution in macroeconomics. Finally, we use our theoretical analysis to shed some light on the economic policy debate and the resistance of German mainstream economists to the introduction of energy price controls in 2022. |
| Keywords: | global energy crisis, German economy, endogenous uncertainty, price controls, inflation, stabilization policy |
| JEL: | D52 D84 E12 E32 E64 Q43 Q48 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17043&r= |