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on Regulation |
| By: | Tim Jenkinson; Tarun Ramadorai |
| Abstract: | It is often taken as axiomatic that investors prefer high levels of regulation. Yet companies have increasingly chosen to list on stock exchanges with lower regulatory requirements. In this paper we analyse whether investors value high regulatory standards for quoted companies. We use the unusual regulatory environment observed in London – two alternative regulatory regimes with the same trading technology – to analyse these issues. We focus on 218 firms that chose to switch their trading ‘down’ from the highly regulated Main market to the lightly regulated AIM market, and 56 firms that moved ‘up’ to the Main market. Switching firms on average experience down (up) announcement returns of approximately -4% (+5%). However these initial reactions are reversed over several months after the actual switch. Our results suggest that particular investor clienteles exist for the two markets, and that other investors who place little value on the higher regulatory standards become the relevant marginal investors when companies switch to AIM. |
| Keywords: | stock markets, listing, regulation, switching |
| JEL: | G14 G30 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:sbs:wpsefe:2008fe18&r=reg |
| By: | Beschorner, Patrick Frank Ernst |
| Abstract: | In this paper we analyze the incentive of the German postal service (Deutsche Post AG, DPAG) to increase quality in the light of the upcoming liberalization of the postal services market. Currently, there would be no incentive for DPAG to increase its quality if the market were not to be liberalized in six months. Therefore, we suggest that the current changes in market regulation have motivated this quality improvement. In particular we show that this rise in quality is only protable to DPAG because it renders entry less profitable or even impossible. However, consumers benefit from higher quality, whether entry is deterred or accommodated. |
| Keywords: | regulation, liberalization, postal services |
| JEL: | L12 L41 L51 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:7007&r=reg |
| By: | Fernando T. Camacho; Flavio Menezes (School of Economics, The University of Queensland) |
| Abstract: | This paper examines a simple two-period model of an investment decision in a network industry characterized by demand uncertainty, economies of scale and sunk costs. In the absence of regulation we identify the minimum price that an unregulated monopolist demands to bear the demand uncertainty and invest early, that is, the price that incorporates the value of the option to delay. In a regulated environment, we show that in the absence of downstream competition and when the regulator cannot commit to ex-post demand contingent prices, a regulated price that incorporates the option to delay is the minimum price that ensures early investment. Furthermore, when the regulator has a preference for early investment, the option to delay price generates higher welfare than other forms of price regulation. We also show that when the vertically integrated network provider is required to provide access to downstream competitors, and the potential entrant is less efficient than the incumbent, an access price that incorporates the option to delay generates the same investment level output as and higher overall welfare than an unregulated industry that is not required to provide access. By contrast, under the same market conditions an ECPR-based access price generates the same overall welfare than an unregulated industry. Moreover, when the potential entrant is more efficient than the incumbent, an Option to Delay Pricing Rule generates the same investment level output as and (weakly) higher overall welfare than the Efficient Component Pricing Rule (ECPR). In addition, the option-to-delay-based access price is (weakly) lower than the ECPR-based access price. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:qld:uq2004:356&r=reg |
| By: | Alexander Stremitzer (University of Bonn, Wirtschaftspolitische Abteilung, Adenauerallee 24-42, 53113 Bonn, Germany; alexander.stremitzer@uni-bonn.de.) |
| Abstract: | If a seller delivers a good non-conforming to the contract, Article 2 of the UCC as well as European warranty law allows consumers to choose between some money transfer and termination. Termination rights are, however, widely criticized, mainly for fear that the buyer resorts to "opportunistic termination", i.e. takes non- conformity as a pretext to get rid of a contract he no longer wants. We show that the possibility of opportunistic termination might actually have positive ef- fects. Under some circumstances, it will lead to redistribution in favour of the buyer without any loss of effciency. Moreover, by curbing the monopoly power of the seller, a regime involving termination increases welfare by enabling a more effcient output level in a setting with multiple buyers. |
| Keywords: | contract law, warranties, breach remedies, termination, harmonization |
| JEL: | K12 C7 L40 D30 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:226&r=reg |
| By: | Markus Reisinger (Department of Economics, University of Munich, Kaulbachstr. 45, 80539 Munich, Germany, e-mail: markus.reisinger@lrz.uni-muenchen.de.); Monika Schnitzer (Department of Economics, University of Munich, Akademiestr. 1/III, 80799 Munich, Germany, e-mail: schnitzer@lrz.uni-muenchen.de) |
| Abstract: | This paper develops a model of successive oligopolies with endogenous market entry, allowing for varying degrees of product differentiation and entry costs in both markets. Our analysis shows that the downstream conditions dominate the overall proï¬tability of the two-tier structure while the upstream conditions mainly affect the distribution of proï¬ts. We compare the welfare effects of upstream versus downstream deregulation policies and show that the impact of deregulation may be overvalued when ignoring feedback effects from the other market. Furthermore, we analyze how different forms of vertical restraints influence the endogenous market structure and show when they are welfare enhancing. |
| Keywords: | Deregulation, Free Entry, Price Competition, Product Differentiation, Successive Oligopolies, Two-Part Tariffs, Vertical Restraints |
| JEL: | L13 D43 L40 L50 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:228&r=reg |
| By: | Koehler, Matthias |
| Abstract: | In 2005, the President of the Bank of Italy blocked the cross-border acquisition of two Italian banks for ‘prudential reasons and formal errors’. Following these events, the EU Commission brought actions against Italy for infringement of the principle of the free movement of capital. Although there is anecdotal evidence that prudential control may constitute a barrier to cross-border M&A in the banking sector, empirical evidence is missing until now. The main problem is the lack of data on the scope for politicians and supervisors to block M&A in the banking sector. The main contribution of this paper is to measure this scope for interference by constructing indices on the political independence and the transparency and strength of the supervisory review process of bank M&A. The main source of information to construct these indices is a questionnaire on banking regulation that was sent to the supervisory authorities in the 25 EU member countries between October 2006 and March 2007. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:7006&r=reg |