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on Regulation |
| By: | Steven Callander (Stanford University, Stanford Graduate School of Business); Hongyi Li (University of New South Wales, School of Economics) |
| Abstract: | Innovations bring many benefits to society, but they can also bring harm. We study the problem of a regulator deciding whether to approve an innovation where information about the impact of the innovation is held within the firms that are developing it. We show that competition for the innovation undermines the regulator’s ability to extract the information she needs to make good policy. As the number of firms increases and the expected benefit of the innovation grows, the probability that the regulator is persuaded to approve an innovation decreases. This tension between competition and communication reverses Arrow’s famous “replacement effect.” Thus, in regulated markets, more competition can lead to fewer innovations making it to market. We explore how this tension can be mitigated, but not eliminated, by political and market design. |
| Keywords: | Innovation, regulation, competition |
| JEL: | L51 O31 D82 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:swe:wpaper:2024-07 |
| By: | Fernando Navajas; Julián Puig |
| Abstract: | The paper models the implementation of increasing block pricing (IBP) coupled with household group segmentation by incomes (high, middle and low) and find necessary conditions for use of progressive block prices and fixed charges based on the distributional characteristics of blocks. It evaluates the recent combination of IBP and group segmentation in residential electricity and natural gas in Argentina using current rate schedules for the Metropolitan Area of Buenos Aires and microdata from the latest Household Expenditure Survey. The findings indicate that those conditions are not validated by the data and estimates and do not justify IBP of fixed charges and marginal prices across blocks within a given household group. Additionally, inconsistencies are observed across groups, with the rate structure (fixed charges for both electricity and natural gas, and block prices for electricity) of the middle-income group being unduly close to that of the low-income group. The analysis provides some justification for the discrimination in natural gas (distribution) prices between Buenos Aires City and Greater Buenos Aires within a given group, due to income disparities between households in both areas. The study suggests a direction of reform towards smaller dispersion of energy prices across groups so as to reduce subsidies and advocate for a shift from IBP to a Two-Part Tariff, incorporating lump sum redistribution across groups. |
| JEL: | D31 H23 L11 L51 L94 L95 L98 Q41 Q48 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:akh:wcefip:047 |
| By: | Klaus M. Miller; Julia Schmitt; Bernd Skiera |
| Abstract: | Privacy regulations often necessitate a balance between safeguarding consumer privacy and preventing economic losses for firms that utilize consumer data. However, little empirical evidence exists on how such laws affect firm performance. This study aims to fill that gap by quantifying the impact of the European Union's General Data Protection Regulation (GDPR) on online usage behavior over time. We analyzed data from 6, 286 websites across 24 industries, covering 10 months before and 18 months after the GDPR's enactment in 2018. Employing a generalized synthetic control estimator, we isolated the short- and long-term effects of the GDPR on user behavior. Our results show that the GDPR negatively affected online usage per website on average; specifically, weekly visits decreased by 4.88% in the first 3 months and 10.02% after 18 months post-enactment. At the 18-month mark, these declines translated into average revenue losses of about USD 7 million for e-commerce websites and nearly USD 2.5 million for ad-based websites. Nonetheless, the GDPR's impact varied across website size, industry, and user origin, with some large websites and industries benefiting from the regulation. Notably, the largest 10% of websites pre-GDPR suffered less, suggesting that the GDPR has increased market concentration. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.11589 |
| By: | Till Fladung; Anna Saile |
| Abstract: | During the energy crisis in 2022, electricity prices in Germany soared to unprecedented levels. To explore the drivers of the high electricity prices, we develop an electricity dispatch model that simulates hourly equilibrium prices under the assumption of perfect competition. We then extend this model to account for firms exercising market power. By comparing the outcomes of the perfect competition and Cournot competition models with actual market data, we demonstrate that market power may contributed to higher prices during the crisis, elevating them beyond what rising input costs alone would justify. |
| Keywords: | Energy Economics, Market Power, Energy Crisis, Electricity Prices, Cournot Competition |
| JEL: | Q41 Q43 L13 D43 L94 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ifowps:_414 |
| By: | Emelianova, Polina (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)); Namockel, Nils (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)) |
| Abstract: | As part of the German energy transition, the increasing adoption of electricity-driven technologies in enduse sectors has become a key political priority. Decentralized flexibility from assets such as electric vehicles and heat pumps influences electricity price formation, raising new challenges related to the redistribution of welfare gains, not only between producers and consumers but also across different groups within these two categories. This paper addresses two research questions: How does decentralized flexibility affect the redistribution of total system welfare between producers and consumers in the wholesale electricity market? And how do varying degrees of flexibility impact electricity costs across different user groups in the transport and heating sectors? To explore these questions, we enhance a European high-resolution dispatch model, focusing specifically on Germany, and incorporate a range of flexibility options and heterogeneous end-user groups. We further simulate multiple use cases with varying degrees of flexibility in the road transport and heating sectors. Our findings reveal that while total system welfare improves slightly, increased flexibility redistributes welfare from producers to consumers. This redistribution benefits consumers as an aggregated group by reducing electricity procurement costs, regardless of whether they provide flexibility. Among the flexibility options analyzed, electric vehicles - particularly through bidirectional charging - demonstrates a greater potential for welfare gains compared to heat pumps. However, this dynamic intensifies competition with centralized assets like utility-scale batteries. In the transport sector, flexibility leads to notable variations in electricity costs based on charging behaviors, whereas in the heating sector, increased flexibility promotes cost convergence across different user groups. |
| Keywords: | Flexibility; Welfare Effects; Energy System Modeling; Energy Transition; End-use Sectors |
| JEL: | C61 D47 O33 Q41 Q48 |
| Date: | 2024–11–25 |
| URL: | https://d.repec.org/n?u=RePEc:ris:ewikln:2024_009 |
| By: | Abdel Mokhtari (emlyon business school, 144 avenue Jean Jaurès, 69007, Lyon, France); Richard Ruble (emlyon business school, CNRS, Université Lumière Lyon 2, Université Jean Monnet Saint-Etienne, GATE, 69007, Lyon, France) |
| Abstract: | We study incentives to invest in electricity generation capacity if an incumbent using nuclear power competes with an endogenous number of entrants using intermittent renewable energy sources. The intermittence of renewables makes the incumbent less aggressive, and the incumbent accommodates if the efficiency difference between technologies is not too large. We analyze France’s long-running subsidy scheme, the ARENH, through the prism of our model. This policy achieves its aim of making product market outcomes more competitive through an endogenous entry channel, but if investments in nuclear power are restarted then pursuing such a scheme would run the risk of facilitating deterrence. |
| Keywords: | Free entry, Intermittence, Renewable energy, Stackelberg leadership |
| JEL: | D24 D61 L13 Q41 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:gat:wpaper:2422 |
| By: | Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University) |
| Abstract: | Introducing network externalities into a Hotelling linear market model, we consider the profit ranking of Bertrand and Cournot equilibria, the problem of endogenous choice of strategic variables, and welfare efficiency. In particular, focusing on network connectivity (horizontal interoperability) between network products, we demonstrate the following results: (i) firms earn higher (lower) profits under Bertrand competition rather than under Cournot competition if network connectivity is sufficiently large (small); (ii) firms choose price (quantity) contracts if network connectivity is sufficiently large (small); (iii) social efficiency is achieved under Bertrand competition if network connectivity is sufficiently large. |
| Keywords: | Hotelling linear market model, Bertrand competition, Cournot competition, network connectivity, fulfilled expectations, rational expectations |
| JEL: | D43 L13 L15 L22 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:kgu:wpaper:283 |
| By: | Imelda (Geneva Graduate Institute (IHEID), Department of International Economics); Anna Lou Abatayo (Environmental Economics and Natural Resources Group, Wageningen University and Research); Budy Resusodarmo (Australian National University, Arndt-Corden Department of Economics, Crawford School of Public Policy) |
| Abstract: | The timing of payment can enhance salience, making customers more price-responsive when paying before consumption rather than after. This study examines Indonesia’s nationwide switch to prepaid electricity metering, impacting over 40 million households. We find that prepaid metering users are twice as price-elastic as postpaid users. We also find a positive willingness to pay for prepaid metering, suggesting consumer welfare gains. As prices rise, prepaid metering reduces excess burden by 1.5% and CO2 emissions by nearly 6%. These findings suggest prepaid meters can support climate policy goals by promoting energy conservation without imposing significant burdens on consumers. |
| Keywords: | electricity; prepayment; elasticity; salience; energy conservation |
| JEL: | Q41 Q48 I30 |
| Date: | 2024–12–17 |
| URL: | https://d.repec.org/n?u=RePEc:gii:giihei:heidwp22-2024 |
| By: | Petrakis, Emmanuel; Moreno, Diego |
| Abstract: | We consider a market economy in which consumption goods are produced using high- and low-skilled labor. When rms have market power, the economy's surplus, aggregate income, employment, wages, and labor share are smaller than those under perfect competition. A low binding minimum wage alleviates the ineficiency and distributional bias caused by market power, without creating unemployment. Revenues from non-distortionary corporate taxes may be used to fund distributional policies (e.g., unemployment subsidies) and/or public spending enhancing production possibilities (e.g., education/innovation programs).Free entry leads to eficient entry under perfect competition but may lead to either excessive or insuficient entry when rms have market power. |
| Keywords: | General Equilibrium; Market Power; Oligopoly; Monopoly; Wage Markdowns; Labor Share; Income Distribution; Minimum Wages; Unemployment |
| JEL: | D4 D5 D6 L1 L4 |
| Date: | 2024–12–13 |
| URL: | https://d.repec.org/n?u=RePEc:cte:werepe:45283 |
| By: | Chiara Bellucci; Armando Rungi |
| Abstract: | Rising market power threatens competition and decreases consumers' welfare. To date, a few works have shown how global firm-level markups increase, but there is scant evidence about the channels of such a change. This study investigates the causal impact of takeovers on markups and related firm-level outcomes on European manufacturing in 2007- 2021. Interestingly, findings suggest that takeovers aimed at vertical integration strategies are procompetitive because they result in lower markups (0.7%) and more sales (2.9%). The effects are higher as time passes from the takeover event, and they increase with the parents' number of already integrated subsidiaries. Notably, we do not find a significant impact on markups in horizontal integration strategies after we control for cherry-picking by acquirers. Eventually, we emphasize that our results on vertical takeovers point to strategies aimed at eliminating double profit margins on the input markets; thus, lower markups increase sales, spreading fixed costs and benefiting from economies of scale. Several checks on methods and sample composition effects confirm our central tenets. Finally, we reconnect with the debate initiated by the U.S. Vertical Merger Guidelines (2020; 2023), where the presumption of harm after vertical deals has been softened, thus considering procompetitive effects, but the discussion of potential foreclosure risks has been expanded. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.12412 |
| By: | Bolotova, Yuliya V. |
| Abstract: | This research analyzes the U.S. fluid milk industry dynamics in light of a herd retirement (HR) program implemented by the Cooperatives Working Together (CWT) in the period of 2003 to 2010, which led to an antitrust lawsuit filed by buyers of fluid milk and other fresh milk products at the retail level against CWT dairy cooperatives and a large settlement. Presuming that they had a Capper-Volstead Act immunity, CWT cooperatives acted in a cartel-like manner to decrease milk supply to increase and stabilize milk prices received by dairy farmers. The HR program may have modestly increased seller market power of dairy farmers reflected in the increased farm sector shares in the retail fluid whole milk prices in the majority of the analyzed cities in the HR period. In contrast, seller market power of fluid milk retailers decreased in these cities, as reflected in the increased cost pass-throughs, decreased fixed absolute markups, and decreased farm-to-retail margins. The cost of milk used in fluid milk manufacturing increased at a higher rate than retail fluid whole milk prices in these cities and fluid milk retailers were able to pass only a portion of the farm milk price increase on their buyers. Nevertheless, in the HR period, buyers of fluid whole milk at the retail level paid higher prices in all analyzed cities, except for Cincinnati and Seattle. |
| Date: | 2024–12–18 |
| URL: | https://d.repec.org/n?u=RePEc:isu:genstf:202412181834180000 |
| By: | Thomas Garcia |
| Abstract: | This paper studies different aspects of electricity pricing for the different provinces of Argentina as of January 2018. In particular, a description of the electricity sector is made, the tariff structures are evaluated, an economic analysis of the different tariff tables is carried out, the discrepancies between the tariffs according to the different provinces are calculated and the national social tariff is analyzed. The main conclusion are: a) The two-parts tariff is the tariff structure used by all distribution companies; b) There are tariff differences between provinces, both in the full tariff and in the national social tariff.; c) For consumption levels of 150 and 300 kWh/month, the highest prices are recorded in the southern, northern and Atlantic areas of the Province of Buenos Aires, Córdoba and Santa Fe. The lowest prices are shown in the regions of the Autonomous City of Buenos Aires, Santa Cruz and La Pampa; d) For consumptions of 450 and 600 kWh/month, the highest prices are charged in the southern and northern areas of the province of Buenos Aires and Córdoba. The regions where the lowest prices are charged are Santa Cruz, La Pampa, La Rioja and Catamarca. |
| JEL: | L11 L51 L94 L98 Q41 Q48 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:akh:wcefip:048 |
| By: | Natasha Aggarwal (TrustBridge Rule of Law Foundation); Bhavin Patel (TrustBridge Rule of Law Foundation) |
| Abstract: | A 2023 decision of the Supreme Court underscored the importance of judicial deference to expert bodies, stating that the High Court should have remanded a technical matter to the Appellate Tribunal for Electricity ('APTEL') instead of adjudicating it itself. Judicial review of erc orders cannot be eliminated, but the grounds and scope of judicial review should be confined within well-settled principles of administrative law. Many challenges against the Telangana State Electricity Regulatory Commission's ('TSERC') orders are filed before the Telangana High Court: in 2021-22, 12 appeals from TSERC were filed before aptel, while 85 appeals were filed before the Telangana High Court (i.e., over seven times the number of appeals before aptel). We analysed writ petitions and appeals involving TSERC before the Telangana High Court between 2014-2022 and examined whether judicial review of the TSERC's orders by the Telangana High Court is within the permitted limits in administrative law. We propose to conduct similar studies for other SERCAs and a comparative study across SERCs. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:bjd:wpaper:7 |
| By: | Paul M. Lohmann (University of Cambridge); Elisabeth Gsottbauer (Free University of Bozen-Bolzano); Christina Gravert (Department of Economics, University of Copenhagen); Lucia A. Reisch (Judge Business School, University of Cambridge,) |
| Abstract: | This paper explores the relationship between decision-making speed and the effectiveness of two nudges – carbon footprint labelling and menu repositioning – aimed at encouraging climate-friendly food choices. Building on Kahneman’s dual-process theory of decision-making, we examine whether these interventions are more effective in fast, intuitive (System 1) contexts compared to reflective, deliberate (System 2) ones. Using an incentivized online randomized controlled trial with a quasirepresentative sample of British consumers (N=3, 052) ordering meals through an experimental food-delivery platform, we introduced a time-pressure mechanism to capture both fast and slow decision-making processes. Our findings suggest that menu repositioning is an effective tool for promoting climate-friendly choices when decisions are made quickly, though the effect fades with extended deliberation. Carbon labels, in contrast, showed minimal impact overall but reduced emissions among highly educated, climate-conscious individuals under time pressure. The results imply that choice architects should apply both interventions in contexts where consumers make rapid decisions, such as digital platforms, to help mitigate climate externalities. |
| Keywords: | carbon-footprint labelling, choice architecture, food-delivery apps, low-carbon diets, dual-process models, system 1 |
| JEL: | C90 D04 I18 D90 Q18 Q50 |
| Date: | 2024–12–13 |
| URL: | https://d.repec.org/n?u=RePEc:kud:kucebi:2419 |
| By: | Rachel Soloveichik |
| Abstract: | This paper demonstrates that the measured wealth stock of the United States increases by $2 trillion in 2022 when radio spectra are included on the balance sheet. Furthermore, this paper also demonstrates that tracking radio spectra can impact the National Income and Product Accounts (NIPAs) noticeably. It may be true that radio spectra are not produced—and therefore do not impact measured investment. Similarly, radio spectra do not deteriorate with age—and therefore do not impact measured consumption of fixed capital. However, this paper argues that radio spectrum licenses which the federal government gives for “free” to the telecommunications industry should be tracked as a capital transfer in BEA’s NIPA table 3.1. These capital transfers are targeted towards new entrants and new products, and so they increase the competitiveness of the telecommunications industry. |
| JEL: | E01 L96 H25 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:bea:papers:0133 |