nep-reg New Economics Papers
on Regulation
Issue of 2023‒11‒27
fifteen papers chosen by
Christopher Decker, Oxford University

  1. Evaluating merger effects By Christos Genakos; Andreas Lamprinidis; James Walker
  2. Goodbye monopoly: the effect of open access passenger rail competition on price and frequency in France on the High-Speed Paris-Lyon Line By Florent Laroche
  3. The Iberian exception: estimating the impact of a cap on gas prices for electricity generation on consumer prices and market dynamics By Manuel Hidalgo-Pérez; Jorge Galindo; Natalia Collado; Ramón Mateo
  4. VAT pass-through and competition: Evidence from the Greek Islands By Lydia Dimitrakopoulou; Christos Genakos; Themistoklis Kampouris; Stella Papadokonstantaki
  5. Market Concentration Implications of Foundation Models By Jai Vipra; Anton Korinek
  6. Restructuring platform merger review By Cho, Sung Ick
  7. Trenitalia's arrival on the Paris-Lyon high-speed line: from open competition to underground cooperation with SNCF ? By Laurent Guihéry
  8. On the Alignment of Consumer Surplus and Total Surplus Under Competitive Price Discrimination By Dirk Bergemann; Benjamin Brooks; Stephen Morris
  9. NLP for Crypto-Asset Regulation: A Roadmap By Carolina Camassa
  10. The Buyer Power Effect of Retail Mergers: An Empirical Model of Bargaining with Equilibrium of Fear By Céline Bonnet; Zohra Bouamra-Mechemache; Hugo Molina
  11. Market power and innovation in the intangible economy By Maarten de Ridder
  12. On the use of artificial intelligence in financial regulations and the impact on financial stability By Jon Danielsson; Andreas Uthemann
  13. The Use of Financial Apps: Privacy Paradox or Privacy Calculus? By Hans Brits; Nicole Jonker
  14. The Hitchhiker's guide to markup estimation By Basile Grassi; Giovanni Morzenti; Maarten de Ridder
  15. Study on access to essential services: The Case of Austria By Christian Berger; Michael Soder

  1. By: Christos Genakos; Andreas Lamprinidis; James Walker
    Abstract: This paper proposes a new algorithm with which to identify the potential effect of mergers by comparing the outcomes of interest in areas of overlap for the merging parties vis-? -vis areas of no overlap within a difference-in-differences estimation framework. Utilizing our proposed algorithm enables researchers and policymakers to perform retrospective merger evaluation studies that look at the effects of mergers on both price and non-price aspects. We demonstrate the applicability and value of our proposed methodology by examining the effects on price and product variety of four mergers of the late 1980s and the 1990s on the U.K. car market.
    Keywords: mergers, ex post policy evaluation, automobile industry
    Date: 2023–06–01
  2. By: Florent Laroche (LAET - Laboratoire Aménagement Économie Transports - UL2 - Université Lumière - Lyon 2 - ENTPE - École Nationale des Travaux Publics de l'État - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Paris-Lyon is the busiest High-Speed Line in Europe and has been open to open access competition since 18 December 2021. The purpose of this article is to explore the first effects on the price and frequency of competition between the Italian company Trenitalia and the French incumbent SNCF. The analysis is based on a large database (n = 971) collected from September 2019 to July 2022. The main challenge is to isolate the COVID-19 pandemic effect from the competition. A similar route without competition (Paris-Bordeaux) was selected to control the effects. The method relies on a descriptive analysis with an original dynamic timetable approach in the discussion. The results highlight an increase of frequency by 5% and a decrease in price by 10%. The prices charged by the newcomer are lower than those of the incumbent (-30% to -40%) though without enough volume to change the global equilibrium. Although far from a big bang, the comparison with the control route suggests a positive effect on price that moderates the economic catch-up effect following the COVID-19 pandemic in an inflationary context. More specifically, SNCF appears relatively insensitive to competitive pressure from Trenitalia. It has not significantly changed its price since the new offer was introduced and has maintained its trains.
    Keywords: Open-access competition, price, frequency, France, regulation, railroads, Working Papers du LAET
    Date: 2023
  3. By: Manuel Hidalgo-Pérez (Department of Economics, Universidad Pablo de Olavide); Jorge Galindo (Esade Ramón Llul University); Natalia Collado (Esade Ramón Llul University); Ramón Mateo (BeBarlet)
    Abstract: As the volatility of short-term energy market prices increases due to exogenous shocks and the changing nature of the energy mix, market interventions are gaining importance in the policy debate. Accurate and robust quantification of their impact is becoming therefore essential. This paper conducts a causality analysis to evaluate the Spanish 'gas cap' for electricity generation during the 2022 energy crisis. We use Bayesian structural time series models to isolate its impact on affected consumers, primarily those under the regulated tariff, from June to December 2022. Our results show that the mechanism successfully lowered prices compared to a counterfactual scenario without the intervention. However, the policy also led to an increase in electricity generation from gas-fired combined cycle plants. In addition, exports to France increased by over 80\% after implementation, as Spanish wholesale prices became cheaper than French prices. Our analysis (1) provides an accurate quantification to date of one of the most consequential energy market interventions in recent years; (2) demonstrates the fruitful use of a novel evaluation method for energy policy; (3) highlights the trade-off between the short-term goal of consumer price relief and the long-term goals of fossil fuel reduction and decarbonisation.
    Keywords: policy evaluation, gas price cap, consumer prices, gas consumption.
    JEL: D12 Q41 Q48
    Date: 2023
  4. By: Lydia Dimitrakopoulou; Christos Genakos; Themistoklis Kampouris; Stella Papadokonstantaki
    Abstract: We examine how competition affects VAT pass-through in isolated oligopolistic markets as defined by the Greek islands. Using daily gasoline prices and a difference-in-differences methodology, we investigate how changes in VAT rates are passed through to consumers in islands with different market structure. We show that pass-through increases with competition, going from 50% in monopoly to around 80% in more competitive markets, but remains incomplete. We also discover a rapid rate of adjustment for VAT changes, as well as a positive relationship between competition and the rate of price adjustment. Finally, we document higher pass-through for products with more inelastic demand.
    Keywords: VAT rates, Greek islands, gasoline, competitive markets, monopoly
    Date: 2023–07–03
  5. By: Jai Vipra; Anton Korinek
    Abstract: We analyze the structure of the market for foundation models, i.e., large AI models such as those that power ChatGPT and that are adaptable to downstream uses, and we examine the implications for competition policy and regulation. We observe that the most capable models will have a tendency towards natural monopoly and may have potentially vast markets. This calls for a two-pronged regulatory response: (i) Antitrust authorities need to ensure the contestability of the market by tackling strategic behavior, in particular by ensuring that monopolies do not propagate vertically to downstream uses, and (ii) given the diminished potential for market discipline, there is a role for regulators to ensure that the most capable models meet sufficient quality standards (including safety, privacy, non-discrimination, reliability and interoperability standards) to maximally contribute to social welfare. Regulators should also ensure a level regulatory playing field between AI and non-AI applications in all sectors of the economy. For models that are behind the frontier, we expect competition to be quite intense, implying a more limited role for competition policy, although a role for regulation remains.
    Date: 2023–11
  6. By: Cho, Sung Ick
    Abstract: Platform mergers differ significantly from traditional mergers. In platform mergers, foreclosure issues, which are crucial in traditional vertical mergers, carry less significance but may still arise indirectly. Platforms, moreover, can favor their own businesses potentially disadvantaging competitors, and leverage their market power to new businesses. Lastly, entry barriers could increase as a result of platforms' multi-service provisions. Nevertheless, platforms can enhance consumer welfare, especially through product (service) bundling. Thus, we need to overhaul the merger review system to incorporate the aforementioned characteristics of platform mergers.
    Date: 2023
  7. By: Laurent Guihéry (MATRiS - Mobilité, Aménagement, Transports, Risques et Société - Cerema - Centre d'Etudes et d'Expertise sur les Risques, l'Environnement, la Mobilité et l'Aménagement - CY - CY Cergy Paris Université, CY - CY Cergy Paris Université)
    Abstract: In its 2011 white paper, European transport policy recommends strengthening the dynamics of competition in passenger rail transport in the E.U. Since December 18, 2021, Trenitalia has been serving Lyon and Paris in open access as an extension of the Milan - Turin - Lyon - Paris line. For the moment, the offer concerns three round trips per day between Milan and Paris (five beginning of June). Offices and ticket vending machines have been installed in the Lyon and Paris stations. This is a revolution in France, a country that is one of the last in Europe to implement, slowly and cautiously, the recommendations of the European Union. Our paper will focus on the start-up of this service by attempting to evaluate the first six months of operation.
    Keywords: European Transport Policy, Railway Transport, Open access, SNCF, Trenitalia, Competition
    Date: 2022–06–09
  8. By: Dirk Bergemann (Yale University); Benjamin Brooks (University of Chicago); Stephen Morris (Massachusetts Institute of Technology)
    Abstract: A number of producers of heterogeneous goods with heterogeneous costs compete in prices. When producers know their own production costs and consumers know 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 consumers are 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 consumers may intensify competition in a way that benefits consumers but results in inefficient production.
    Date: 2023–11–12
  9. By: Carolina Camassa
    Abstract: In the rapidly evolving field of crypto-assets, white papers are essential documents for investor guidance, and are now subject to unprecedented content requirements under the EU's Markets in Crypto-Assets Regulation (MiCAR). Natural Language Processing can serve as a powerful tool for both analyzing these documents and assisting in regulatory compliance. This paper delivers two contributions to the topic. First, we survey existing applications of textual analysis to unregulated crypto-asset white papers, uncovering a research gap that could be bridged with interdisciplinary collaboration. We then conduct an analysis of the changes introduced by MiCAR, highlighting the opportunities and challenges of integrating NLP within the new regulatory framework. The findings set the stage for further research, with the potential to benefit regulators, crypto-asset issuers, and investors.
    Date: 2023–10
  10. By: Céline Bonnet (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); Zohra Bouamra-Mechemache (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); Hugo Molina (AgroParisTech)
    Abstract: We develop a bilateral oligopoly framework with manufacturer-retailer bargaining to analyze the impact of retail mergers on market outcomes. We show that the surplus division between manufacturers and retailers depends on three bargaining forces and can be interpreted in terms of "equilibrium of fear". We estimate our framework in the French soft drink industry and find that retailers have a higher bargaining power than manufacturers. Using counterfactual simulations, we highlight that retail mergers increase retailers' fear of disagreement which weakens their bargaining power vis-à-vis soft drink manufacturers and leads to higher wholesale and retail prices.
    Keywords: Bilateral oligopoly, Bargaining, Retail mergers, Soft drink industry
    Date: 2023
  11. By: Maarten de Ridder
    Abstract: This paper offers a unified explanation for the slowdown of productivity growth, the decline in business dynamism and the rise of market power. Using a quantitative framework, I show that the rise of intangible inputs - such as software - can explain these trends. Intangibles reduce marginal costs and raise fixed costs, which gives firms with high-intangible adoption a competitive advantage, in turn deterring other firms from entering. I structurally estimate the model on French and U.S. micro data. After initially boosting productivity, the rise of intangibles causes a decline in productivity growth, consistent with the empirical trends observed since themid-1990s.
    Keywords: Productivity, Growth, Business Dynamism, Intangible Inputs, Market Power
    Date: 2022–12–20
  12. By: Jon Danielsson; Andreas Uthemann
    Abstract: Artificial intelligence (AI) is making rapid inroads in financial regulations. It will benefit micro regulations, concerned with issues like consumer protection and routine banking regulations, because of ample data, short time horizons, clear objectives, and repeated decisions that leave plenty of data for AI to train on. It is different with macro regulations focused on the stability of the entire financial system. Here, infrequent and mostly unique events frustrate AI learning. Distributed human decision making in times of extreme stress has strong advantages over centralised AI decisions, which, coupled with the catastrophic cost of mistakes, raises questions about AI used in macro regulations. However, AI will likely become widely used by stealth as it takes over increasingly high level advice and decisions, driven by significant cost efficiencies, robustness and accuracy compared to human regulators. We propose six criteria against which to judge the suitability of AI use by the private sector and financial regulation.
    Date: 2023–10
  13. By: Hans Brits; Nicole Jonker
    Abstract: This paper examines whether the ‘privacy paradox’, i.e. a dichotomy between privacy intentions and privacy behaviours, is visible amongst users of financial services apps. Using a survey among Dutch consumers, we study to what extent people share financial data with third parties, and whether their data sharing activities are in line with their privacy concerns. We find that paradoxical usage of financial apps as measured by the privacy paradox metric is low, most users seem to make a rational calculation of benefits versus privacy risks. Paradoxical non-usage is substantial. This could be an efficiency issue, but is not a problem from a risk perspective. Regression analysis shows that app usage correlates positively with its perceived benefits and negatively with privacy risks. Furthermore, usage of certain types of apps depends on people’s trust in the app providers. Overall, the results point to privacy calculating behaviour amongst the users of the data sharing apps in this study rather than to paradoxical behaviour.
    Keywords: Financial apps; Consumer choice; Discrete Choice Modelling; Metric; Personal Data; Privacy Calculus; Privacy Paradox; PSD2; Westin Index
    JEL: C35 D12 D80 G21 G23 G28 E42 O31
    Date: 2023–11
  14. By: Basile Grassi; Giovanni Morzenti; Maarten de Ridder
    Abstract: Is it feasible to estimate firm-level markups with commonly available datasets? Common methods to measure markups hinge on a production function estimation, but most datasets do not contain data on the quantity that firms produce. We use a tractable analytical framework, simulation from a quantitative model, and firm-level administrative production and pricing data to study the biases in markup estimates that may arise as a result. While the level of markup estimates from revenue data is biased, these estimates do correlate highly with true markups. They also display similar correlations with variables such as profitability and market share in our data. Finally, we show that imposing a Cobb-Douglas production function or simplifying the production function estimation may reduce the informativeness of markup estimates.
    Keywords: Macroeconomics, Production Functions, Markups, Competition
    Date: 2022–12–20
  15. By: Christian Berger; Michael Soder
    Date: 2023

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