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on Regulation |
| By: | Susan Athey; Fiona Scott Morton |
| Abstract: | We study how market power in artificial intelligence (AI) shapes wages and welfare in open-economy general equilibrium by treating AI as a priced, imported factor. Across three models, we separate technical efficiency from the impact of upstream price setting. In a two-traded-goods benchmark, the incidence of AI price changes depends on how sectoral skill intensity changes with AI prices; non-monotone intensity can generate “double harm” for unskilled workers (lower real wage after a large decrease in the price of AI, and real wage decreases further when the AI price rises as a result of market power). With one non-traded sector, we observe that the classic “Dutch disease” effect here would arise when one sector gets more productive and draws labor away from other sectors, creating scarcity and raising prices; but this is not what we expect from the introduction of labor-substituting AI. In contrast, our last model considers two non-traded sectors and CES/free entry, and the opportunity for discrete adoption of technology that replaces unskilled labor from the AI-using sector. When AI reduces unit costs and increases variety, it will not pull U from non-tradables, instead it will displace workers from the AI-using sector and lower wage due to diminishing returns in alternative sectors. Strategic upstream pricing of AI then harms welfare through unit-cost (usage fees) and variety (access fees) channels, with income leakage abroad. We derive an adoption frontier tying feasible usage prices to displaced workers’ outside options and show a monopolist typically prices on this boundary; capping one instrument shifts rents to the other. Broad gains for the adopting country relies on pressure (or regulation) on both usage and access fees and as well as policy that supports productive absorption of displaced labor. The framework clarifies when AI can lower real wages and aggregate welfare despite efficiency gains. |
| JEL: | L10 L12 L4 L40 L5 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34444 |
| By: | Tomaso Duso; Martin Peitz |
| Abstract: | Trade conflicts, geopolitical tensions, digital disruption, and the climate crisis pose major challenges for the European Union (EU) and its member states. As called for in the Draghi Report, industrial policy measures can increase competitiveness, strengthen resilience, and facilitate the twin transformation. This article explores ways in which competition policy can be realigned to better accommodate industrial policy objectives. Using German competition law as a reference point, it presents options with which legislatures and competition authorities can respond to current challenges, reconcile conflicting objectives, and adapt the decision-making framework. It then considers elements of a competition-oriented industrial policy, understood as an evidence-based, targeted approach in which competition serves both as a guiding principle and as a control variable. |
| Keywords: | industrial policy, protection of competition, competition, regulation, competition policy, competitiveness, internal market |
| JEL: | L40 L50 L52 K21 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_710 |
| By: | Jon Frost; Jean-Charles Rochet; Hyun Song Shin; Marianne Verdier |
| Abstract: | We compare three competing digital payment instruments: bank deposits, digital platform tokens and central bank digital currencies (CBDCs). A simple theoretical model integrates the theory of two-sided markets and payment economics. We use the model to assess the impact of a public option such as a fast payment system that makes private payment instruments interoperable, or a CBDC that provides general access to public digital money. We show that both options are essentially equivalent for the industrial organisation of the payment system. We find that, even if they may lead to some degree of disintermediation, both options can contribute to increasing financial inclusion and improving social welfare. |
| Keywords: | payments, CBDC, fast payments, banks, big tech, platforms |
| JEL: | E42 E58 G21 L51 O31 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1301 |
| By: | Chongwoo Choe; Antoine Dubus; Noriaki Matsushima; Shiva Shekhar |
| Abstract: | Marketplace platforms are central players in online retail and are in an advantageous position to leverage data generated by third-party sellers. This paper analyzes how a platform's encroachment decision - whether to enter its marketplace as a direct competitor - is shaped by regulations that restrict its use of seller data. We show that the platform's encroachment decision follows a non-monotonic pattern: it enters against sellers with either relatively low or sufficiently high brand value, but remains a pure intermediary for intermediate brand values. The data ban regulation alters this strategy by making the platform more likely to exclude low brand-value sellers and more likely to accommodate high brand-value sellers. The implication is that, while such regulation can enhance competition in markets with high-value sellers, it can inadvertently harm sellers and reduce consumer surplus in emerging markets, where sellers typically lack brand recognition and depend on platform visibility. These results underscore the need for more nuanced regulatory approaches - promoting data sharing in emerging markets and targeted bans in mature, established markets - to better balance welfare and competition. |
| Keywords: | marketplace platforms, data regulations, digital markets act, innovation |
| JEL: | L21 L51 L42 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12233 |
| By: | Lucas W. Davis; Paige E. Weber |
| Abstract: | Hundreds of power plants have closed in the United States since 2010, including 130+ gigawatts of coal and 50+ gigawatts of natural gas. In this paper, we highlight the potential for regulation to distort this type of exit decision. Using generator-level data from 2010–2023, we show that regulated units have been 45% less likely to exit than unregulated units. For unregulated units, exit decisions are made based on wholesale electricity prices, ongoing capital costs, and other traditional economic factors. In contrast, owners of regulated units are largely insulated from these factors and, in some cases, have a strong incentive to continue operating capital-intensive equipment. Previous work documents how this regulatory distortion affects investment decisions. Our paper emphasizes that these same incentives affect exit decisions as well. |
| JEL: | D24 L94 Q41 Q48 Q54 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34454 |
| By: | Justus Haucap; Mehmet Karacuka; Hakan Inke |
| Abstract: | Utilizing Connor’s International Cartel Database and employing difference-in-differences methodology, we find that market concentration, the number of buyers and cartel duration have significant impacts on cartel overcharges. We also find that the European Commission's 2006 guidelines on the method of setting fines for cartel infringements seems to have decreased cartel overcharges in the EU. In addition, the EU’s cartel damages directive of 2014 (2014/104/EU) appear to have increased private damage payments. Overall, we find support that these two changes in EU competition policy have a reversing impact on the otherwise increasing trend of cartel overcharges, as making the infringement more costly at least in the EU. |
| Keywords: | cartel fines, cartel damages, EU guidelines, competition law, antitrust |
| JEL: | L41 K21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12259 |
| By: | George, Babu (Alcorn State University) |
| Abstract: | State Public Service Commissions face complex decisions when utilities incur extraordinary costs from disasters, fuel price spikes, or emergency infrastructure repairs. This paper examines five primary cost recovery methods, i.e., immediate pass-through, short-term amortization, rate base inclusion, securitization, and deferral, analyzing their distinct impacts on utility financial stability, customer affordability, and regulatory transparency. Drawing on a literature review of utility regulation theory, financial mechanisms, and empirical evidence, the study synthesizes theoretical foundations including natural monopoly theory and the regulatory compact with practical regulatory considerations. A detailed hypothetical case study included as appendix demonstrates how a $25 million extraordinary cost would be recovered under each method, providing complete mathematical calculations, customer bill impacts across residential, commercial, and industrial classes, and total cost comparisons over recovery periods ranging from three months to twenty years. The analysis reveals fundamental trade-offs: immediate recovery minimizes total costs but creates severe bill shock, while securitization offers the lowest monthly impact but highest total cost due to extended interest payments. The paper emphasizes that transparent modeling, reproducible calculations, and meaningful public engagement are essential for regulatory legitimacy. It concludes with best practice recommendations for regulators, utilities, and consumer advocates, arguing that method selection must be context-dependent, balancing cost magnitude, customer economic conditions, utility financial health, and regulatory precedent to achieve equitable and sustainable outcomes. |
| Date: | 2025–10–28 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:49r5w_v1 |
| By: | Heims, Eva |
| Abstract: | To what extent does regulatory agencies' failure to protect the public from harm result from undue industry influence? We argue that “regulatory capture” is invoked too easily to explain regulatory failure. To re‐examine the relationship between regulatory capture and regulatory failure, we use process‐tracing to study UK regulatory decision‐making about payment protection insurance (PPI), a product synonymous with one of the largest financial mis‐selling scandals of all time. We analyze the case through three different perspectives on regulatory decision‐making: regulatory capture, organizational reputation, and organizational blind spots. The findings show that only the combination of all three theoretical lenses enables us to make sense of the Financial Services Authority's approach to PPI. We advance regulatory failure theory by showing how different external pressures on regulators and internal organizational constraints interact to result in failure, thus providing a comprehensive framework for the study of regulatory failure that future studies can apply. |
| Keywords: | regulatory agencies; organizational reputation; regulatory failure; regulatory capture; organizational blind spots; payment protection insurance |
| JEL: | F3 G3 |
| Date: | 2025–11–11 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:130150 |
| By: | Masayuki MORIKAWA |
| Abstract: | This study estimates the compliance costs of government rules and regulations based on a survey of Japanese workers. The results reveal the following key findings. First, nearly half of all workers engage in tasks related to regulatory compliance. Second, nearly 20% of total labor input is devoted to compliance tasks, implying a significant negative impact on macroeconomic productivity. Third, engaging in compliance tasks is associated with perceptions of workplace understaffing and frequency of sudden overtime. These findings suggest that reducing and streamlining such work has the potential to enhance both productivity and the well-being of workers. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:eti:polidp:25016 |
| By: | Hans-Theo Normann; Nina Ruli\'e; Olaf Stypa; Tobias Werner |
| Abstract: | We analyze the delegation of pricing by participants, representing firms, to a collusive, self-learning algorithm in a repeated Bertrand experiment. In the baseline treatment, participants set prices themselves. In the other treatments, participants can either delegate pricing to the algorithm at the beginning of each supergame or receive algorithmic recommendations that they can override. Participants delegate more when they can override the algorithm's decisions. In both algorithmic treatments, prices are lower than in the baseline. Our results indicate that while self-learning pricing algorithms can be collusive, they can foster competition rather than collusion with humans-in-the-loop. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2510.27636 |
| By: | Sardo, Alessio |
| Abstract: | This article investigates the contractual and proprietary implications of short-term rental (STR) regulation in European cities. Focusing on Berlin, London, Milan, and Paris, it compares regulatory strategies ranging from targeted administrative restrictions to structural redefinitions of housing access. Drawing on private law theory and law-and-economics approaches, the article shows how STR regulation reconfigures the classical balance between contractual autonomy and property rights in light of urban policy goals. Empirical analysis complements the normative argument through a Hedonic Pricing Model estimated across the four cities. Using log-linear regressions with neighbourhood fixed effects and clustered standard errors on Inside Airbnb data, the model reveals robust and significant spatial price differentials. Entire flats and hotel-type listings command substantial premiums, while private and shared rooms are structurally penalized. These effects persist across specifications and point to a regressive structure in platform-mediated rental markets. By combining doctrinal and quantitative methods, the article frames STR regulation as a site of distributive recalibration within private law. Legal categories are not neutral: they structure access to the city. As STRs reshape property use, contract enforcement, and urban residence, the paper argues for a renewed legal framework attentive to spatial inequality, enforcement asymmetries, and platform governance.226 |
| Keywords: | short term rentals; social function; hedonic pricing model; Airbnb; platforms regulation |
| JEL: | R14 J01 |
| Date: | 2025–11–12 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:130151 |
| By: | Cavalcanti, T.; Mohaddes, K.; Nian, H.; Yin, H. |
| Abstract: | This paper investigates the pass-through of environmental compliance costs along supply chains. We compile a firm-level dataset linking regulated firms in pollution-intensive industries with their top five clients and suppliers. We find that clients of regulated firms invest less in R&D, employ fewer skilled R&D staff, and produce fewer innovations than clients of less regulated firms, while no comparable effects are observed for suppliers. The pass-through is stronger with larger trade volumes, higher input prices faced by clients, and in markets where regulated firms hold greater market power or clients face intense competition. Policy simulations suggest that green technology incentives for regulated firms and R&D subsidies for their clients can mitigate these adverse effects and raise social welfare by enhancing both innovation and environmental quality. |
| Keywords: | Environmental Compliance, Supply Chains, Pass-Through, R&D, Innovation |
| JEL: | O30 Q01 Q55 |
| Date: | 2025–10–18 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camdae:2568 |
| By: | D\'avid Csercsik; \'Ad\'am Sleisz |
| Abstract: | When the traded energy and reserve products between zones are co-allocated to optimize the infrastructure usage, both deterministic and stochastic flows have to be accounted for on interconnector lines. We focus on allocation models, which guarantee deliverability in the context of the portfolio bidding European day-ahead market framework, assuming a flow-based description of network constraints. In such models, as each unit of allocated reserve supply implies additional cost, it is straightforward to assume that the amount of allocated reserve is equal to the accepted reserve demand quantity. However, as it is illustrated by the proposed work, overprocurement of reserves may imply counterintuitive benefits. Reserve supplies not used for balancing may be used for congestion management, thus allowing valuable additional flows in the network. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.01877 |
| By: | Nils H. Lehr; Pascual Restrepo |
| Abstract: | Leading AI firms claim to prioritize social welfare. How should firms with a social mandate price and deploy AI? We derive pricing formulas that depart from profit maximization by incorporating incentives to improve welfare and reduce labor disruptions. Using US data, we evaluate several scenarios. A welfarist firm that values both profit and welfare should price closer to marginal cost, as efficiency gains outweigh distributional concerns. A conservative firm focused on labor-market stability should price above the profit-maximizing level in the short run, especially when its AI may displace low-income workers. Overall, socially minded firms face a trade-off between expanding access to AI and the resulting loss in profits and labor market risks. |
| Keywords: | Artificial intelligence; automation; corporate social responsibility |
| Date: | 2025–11–07 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/234 |
| By: | Bruno Felipe de Oliveira; Alessandro V. M. Oliveira |
| Abstract: | This paper aims to discuss the impacts of low-cost airlines on the air transport market and, in particular, to present the most recent findings from the specialized literature in this field. To this end, several papers published on the topic since 2015 were selected and analyzed. Based on this analysis, the main subjects addressed in the studies were categorized into five groups: (i) impacts of low-cost airlines on competing carriers; (ii) impacts on airports; (iii) general effects on air transport demand; (iv) effects on passengers' choice processes; and (v) broader effects on geographical regions. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.00932 |
| By: | Timilsina, Govinda R. |
| Abstract: | This study investigates the factors responsible for the poor performance of 67 electric utilities in 47 countries, using descriptive data from the World Bank, the International Energy Agency, the U.S. Energy Information Administration, and national sources. The findings show that both cost-side and revenue-side factors are responsible for the poor financial performance of electric utilities. More than two-thirds of vertically integrated utilities and electricity distribution utilities are unable to cover their operational and debt service costs by their revenues. The main causes of the poor financial performance are high fuel costs (particularly oil), low capacity factors, low capital and labor productivity, high transmission and distribution losses, and leakage in electricity bill collections. The study finds that in these countries, despite their much lower per capita income, consumers face relatively higher electricity tariffs than in many countries around the world. The study also finds that if the transmission and distribution losses were reduced to the current level of South Africa (11 percent) and the leakages in bill collection were eliminated, several electric utilities that are currently operating at a loss would have higher revenue than their operational cost. The findings indicate that policy makers in the region should focus on a portfolio of policies, including switching from expensive generation to emerging cheaper options, improving factor productivities, having efficient institutions and governance, reducing transmission and distribution losses, improving bill collection, and reforming tariffs. The policy priorities could vary across countries, depending on the roles of various factors contributing to poor financial performance. |
| Date: | 2025–11–10 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:11257 |
| By: | Kevin Zielnicki; Guy Aridor; Aurelien Bibaut; Allen Tran; Winston Chou; Nathan Kallus |
| Abstract: | Personalized recommendation systems shape much of user choice online, yet their targeted nature makes separating out the value of recommendation and the underlying goods challenging. We build a discrete choice model that embeds recommendation-induced utility, low-rank heterogeneity, and flexible state dependence and apply the model to viewership data at Netflix. We exploit idiosyncratic variation introduced by the recommendation algorithm to identify and separately value these components as well as to recover model-free diversion ratios that we can use to validate our structural model. We use the model to evaluate counterfactuals that quantify the incremental engagement generated by personalized recommendations. First, we show that replacing the current recommender system with a matrix factorization or popularity-based algorithm would lead to 4% and 12% reduction in engagement, respectively, and decreased consumption diversity. Second, most of the consumption increase from recommendations comes from effective targeting, not mechanical exposure, with the largest gains for mid-popularity goods (as opposed to broadly appealing or very niche goods). |
| Keywords: | personalization, recommender systems, streaming platforms |
| JEL: | L82 C25 D83 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12257 |