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on Regulation |
| By: | Rhodes, Andrew; Zhou, Jidong |
| Abstract: | We study personalized pricing (or first-degree price discrimination) in a general oligopoly model. In the short-run, when the market structure is fixed, the impact of personalized pricing hinges on the degree of market coverage (i.e., how many consumers buy). If coverage is high (e.g., because the production cost is low, or the number of firms is large), personalized pricing intensifies competition and so harms firms but benefits consumers, whereas the opposite is true if coverage is low. However in the long-run, when the market structure is endogenous, personalized pricing always benefits consumers because it induces the socially optimal level of firm entry. We also study the asymmetric case where some firms can use consumer data to price discriminate while others cannot, and show it can be worse for consumers than when either all or no firms can personalize prices. |
| JEL: | D43 D82 L13 |
| Date: | 2022–05–09 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:126889&r= |
| By: | Ricardo Gonçalves (Católica Porto Business School and CEGE, Universidade Católica Portuguesa); Flavio M. Menezes (School of Economics, University of Queensland, Brisbane, Australia) |
| Abstract: | This paper estimates the price impacts of the unanticipated closure of Hazelwood, a large brown coal power plant (1600 MW) in Victoria, Australia. We measure the total impact of the closure on prices in Australia's National Electricity Market for each half-hour interval and for each state 3 months, 6 months, and 12 months from closure. We also break down the impact into direct and indirect effects. We fnd that the total impact of the closure on prices varies considerably across half-hours. The results vary not only in magnitude and across time, but also in statistical significance. Our estimates suggest an upper bound for the impact on the average half-hourly price of $18.90/MW 12 months from closure, with a total market impact of $4,287.7 million. When we break down the total impact into direct and indirect effects, we find the latter to be the main driver of our results. In particular, we find that the reduction in the prices because of increased wind generation in a given half hour - the merit-order effect - has decreased markedly following the closure, and this largely explains the observed price increases post-closure. |
| Keywords: | electricity markets; market impacts; closure of coal power plant. |
| JEL: | D4 L94 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:qld:uq2004:654&r= |
| By: | Alfredo Salgado |
| Abstract: | This paper theoretically analyzes the role of reference prices on competition and welfare in a context of a circular city model with free entry and reference prices, in which paying market prices above a reference negatively affects the utility of consumers. Agents interact in a three-stage game: 1. A policymaker chooses a reference price to maximize consumer welfare. 2. Firms make their entry decision. 3. Firms compete in prices and consumers make their consumption decisions. We find that in equilibrium the market price and the optimal reference price chosen by the policymaker always coincide. In addition, it is shown that the use of reference prices reduces market equilibrium prices compared with the case without reference prices, which implies a net welfare gain for consumers. These gains could be higher in less competitive environments and lower in the presence of higher marginal costs. |
| JEL: | C7 D4 D9 L1 L2 L5 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2022-05&r= |
| By: | Gmeiner, Michael; Gmeiner, Robert |
| Abstract: | This paper compares the effectiveness of two mechanisms of regulation enforcement: (1) the frequency of inspections and (2) penalties for violations. Threat effects of increased penalties and inspection rates, rather than corrective effects upon receiving an inspection or penalty, are the focus of analysis. Mining industry data from 2004–2009 are used to analyze the responses of mines to separate increases in inspections and citation penalties regarding regulations of safety standards. Mines did not improve safety in response to increased penalties at the ex-ante inspecting rates; however, mines significantly reduced accidents under increased inspections when implemented at those higher penalty rates. The identification strategy results in a local average treatment effect that implies increasing inspection rates from current levels would likely increase social welfare. Results are shown to be robust to bandwidth changes and model specification. The interpretation of the estimated local effect in the context of selection is analyzed. Robustness checks regarding selection exploit staffing changes and restrict to similar samples of treated and non-treated mines, justifying that results are representative. |
| Keywords: | threat effects; regulation enforcement; worker safety; compliance; inspections; mining; Springer deal |
| JEL: | J08 K23 K42 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:114895&r= |
| By: | Lílian Santos Severino (Conselho Administrativo de Defesa Econômica (Cade), Departamento de Estudos Econômicos); Guilherme Mendes Resende (Conselho Administrativo de Defesa Econômica (Cade), Departamento de Estudos Econômicos); Ricardo Carvalho de Andrade Lima (Ministério Público Federal) |
| Abstract: | Competition policy aims to preserve market competition by, for example, preventingmergers that harm consumers. Mergers can diminish competition by facilitating either tacit orexplicit collusion or may creating a unilateral incentive to increase price. While thesepossibilities provide an economic rationale for merger enforcement, mergers might be relatedto improving how markets function. Maldonado and Severino (2019) show that moreproductive firms acquire target firms that are more productive, which indicates the synergythat M&A can bring. Generally, Antitrust Authorities (AAs) analyze cases of M&A and potentialanticompetitive conducts, such as collusion. In this study, we will focus on the decisionscarried out by the Brazilian Antitrust Authority, the Administrative Council for EconomicDefense (CADE), regarding M&A's in the Brazilian airline sector in recent years. The Brazilianairline sector has a fundamental role in the economic development. In 2019, it representedapproximately 1% of the global GDP and faced a growth of 3.3% in air transport expensesregarding to the previous year (IATA, 2019b). In Brazil, Section 88 of the Law 12529/2011 regulates the M&A cases which must bereviewed by Cade. During reviews, the Antitrust Authority studies the impacts that theoperation can have on the market. Some well-known international methodologies, such asthe Upward Pricing Pressure (UPP) and mergersimulations, are commonly used to identify thelikelihood of a merging firm raising prices after the operation – which can be widespread tothe entire market. If prices are expected to rise, consumers will be adversely affected by themerger; thus, to prevent it, CADE can clear a transaction subject to remedies, or block it. Onthe other hand, if the deal does not pose any competition issues, Cade may clear thetransaction unconditionally. Nowadays, many studies indicate the importance of evaluating mergers outcome,especially within the Antitrust Authorities, since "ex-post evaluations can help to determine ifan intervention (or non-intervention) has achieved its objectives and, if not, the reasons itfailed to do so" (OECD, 2016). In response to this demand, the Competition Division of theOECD published a Guide for ex post evaluation to advise authorities on the importance ofmonitoring the outcome of their decisions, which can help to better design futureinterventions. Furthermore, it is worth noting that by carrying out and disclosing ex postmerger evaluations, the antitrust authorities present more transparency towards society and highlight the importance of competition enforcement. In 2019, for instance, Cade publishedits first ex post merger evaluation, which analyzed the impact on products prices of a mergerbetween two firms of the food industry – namely the Sadia-Perdigão case (Severino, Resende,Bispo, 2019). The present study aims to analyze the effects on the average airfare on domestic routesby two mergers cleared by Cade in this sector (GOL and Webjet; and Azul and Trip). This studycontributes to monitoring the competition policy in Brazil in the airline industry, a key sectorfor the country's economic development, by estimating difference in differences (DID) modelsconsidering as dependent variables fare prices and seats sold from July 2010 to December2019. The results indicate a reduction of about 8% in GOL's fare on routes in which GOL andWebjet operated before the merger (overlap routes) and an increase of approximately 38% inthe number of seats sold by GOL in those same routes after the merger. On the other hand,in the merger case of Azul and Trip, we did not find a statistically significant effect on the fare,but we found an increase of nearly 27% in the number of seats sold by Azul on overlap routesafter the transaction. These results present relevant implications. First, we cannot find anticompetitive effectsresulting from these mergers in the Brazilian airline sector; at the international field, similarresults were found by Carlton et al. (2019) during the analysis of three legacy mergers in theUnited States (namely Delta-Northwest, The United-Continental, and The American-USAirways). Secondly, these two mergers were cleared by the Brazilian authority subject toconditions related to the efficiency of the Santos Dumont airport; thus, it is possible to statethat Cade achieved its purpose of protecting competition for the benefit of consumers. Finally,we must take into consideration that these were e specific mergers in a particular period, whichdoes not indicate that these results should be found in every transaction in the airline sector. |
| Keywords: | Fusões e Aquisições, Política de defesa da concorrência, Avaliações ex post |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:atg:wpaper:32021&r= |
| By: | Chiara Criscuolo (OECD); Nicolas Gonne (OECD); Kohei Kitazawa (OECD); Guy Lalanne (OECD) |
| Abstract: | While the case for industrial policy is gaining traction across OECD countries, little consensus exists on the effectiveness of such interventions. Building on a new analytical framework for industrial policy developed in a companion paper, this paper reviews the empirical literature on the effectiveness of industrial policy instruments, laying out the knowns and unknowns. Overall, it strongly supports the premise that well-designed economic incentives for firms and good framework conditions shaping the business environment are effective. At the same time, it emphasises the limited and inconclusive nature of the evidence regarding the increasingly frequent targeted and demand-side instruments. Finally, it underlines the complementarities between economic incentives and other interventions such as skill policies or framework conditions, notably competition and trade policies. Framework conditions are indeed key in enabling the most productive firms to grow and an important channel for structural change. |
| Keywords: | industrial policy, public guarantees, public loans, public venture capital, subsidies, tax expenditures |
| JEL: | L52 L53 O25 O38 Q58 |
| Date: | 2022–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:oec:stiaac:128-en&r= |
| By: | Chiara Criscuolo (OECD); Nicolas Gonne (OECD); Kohei Kitazawa (OECD); Guy Lalanne (OECD) |
| Abstract: | The debate on industrial policy has made a comeback in both academic and policy circles. Yet, no consensus exists on an industrial policy paradigm and the absence of a common reference framework unduly obfuscates the debate – even which interventions are to be considered “industrial policy” is not clear-cut. Against this background, this paper proposes a coherent framework for analysing the formulation of industrial policy, relying on a purposefully broad definition of the latter. Leveraging the proposed framework and a companion paper which synthetises the available empirical evidence, this paper stresses the complementarities between policy instruments, thereby justifying the use of industrial strategies, acknowledges the role of targeted industrial strategies, which can direct technological change and growth, and of demand-side instruments, which can contribute to transformative industrial change, but calls for a stronger emphasis on evaluation and the regular re-assessment of targeted industrial strategies. |
| Keywords: | industrial policy, industrial strategies |
| JEL: | L52 L53 O25 O38 Q58 |
| Date: | 2022–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:oec:stiaac:127-en&r= |
| By: | Gregor Langus; Vilen Lipatov |
| Abstract: | We identify features of interactions on online platforms that make an ad-funded business model attractive for the platform, but also for consumers. We then show that ad-funded platforms heavily rely on data for their ability to create value for their users. Formally, we show that data restrictions may trigger a switch away from ad-funded to fee-funded model, resulting in a loss of consumer welfare. We also argue that restricting the effort to increase data quality weakens competition to the detriment of consumers. |
| Keywords: | ad-funded business model, data aggregation restrictions, targeted advertising, platform competition, merchant competition, transaction costs |
| JEL: | K21 L22 L40 M37 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9525&r= |
| By: | Orley Ashenfelter (Princeton University); David Card (UC Berkeley); Henry S. Farber (Princeton University); Michael R. Ransom (Brigham Young University) |
| Abstract: | This paper summarizes the results of nearly a dozen new papers presented at the Sundance Conference on Monopsony in Labor Markets held in October 2018. These papers, to be published as a special issue of the Journal of Human Resources, study various aspects of monopsony and failures of competition in labor markets. It also reports on the new developments in public policies associated with widespread concerns about labor market competition and efforts to ameliorate competitive failures. The conference papers range from studies of the labor supply elasticity individual firms face to studies of local labor market concentration to studies of explicit covenants suppressing labor market competition. New policies range from private and public antitrust litigation to concerns about the effect of mergers and interfirm agreements on labor market competition. We provide a detailed discussion of the mechanics of the Silicon Valley High Tech Worker conspiracy to suppress competition based on Court documents in the case. Noncompete agreements, which are not enforceable in three states already, have also come under scrutiny. |
| Keywords: | Monopsony, Labor Market Power |
| JEL: | J0 J2 J3 L4 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:pri:cepsud:294&r= |
| By: | BOUCKAERT, Jan; VAN MOER, Geert |
| Abstract: | The purpose of this article is to offer insights to courts and competition authorities on how to assess horizontal agreements to team up in a procured project. We argue that agreements which are specified in advance of bidding should be evaluated against the counterfactual whereby firms negotiate subcontracts after bidding has ended. Following this approach, we challenge the commonly held viewpoint that joint bidding distorts competition if the bidding consortium members could each bid solo. We also question the need for bidding consortium members to integrate their operations. |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:ant:wpaper:2022001&r= |
| By: | BOUCKAERT, Jan; STENNEK, Johan |
| Abstract: | We study how the legal profession manages representational conflicts of interest. Such conflicts arise when the same law firm represents clients with adverse interests. They may compromise the legal process, ultimately jeopardizing social welfare. We argue that current ethical standards, emphasizing disqualification over Chinese walls, may actually worsen the clients’ situation. Instead, the clients’ interests are today mainly protected by law firms being small. Despite low market concentration, law firms enjoy high earnings as representational conflicts create negative network externalities at the firm level. These profits are not eroded even in the long run as entry occurs through firm splitups. |
| Keywords: | Law firms, Professional services, Dual representation, Representational conflicts of interest, Ethical standards, Chinese walls, Recusals, Negative network externalities, Competition, Self-regulation |
| JEL: | K40 L13 L22 L44 L84 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:ant:wpaper:2022002&r= |
| By: | Amanda Starc; Thomas G. Wollmann |
| Abstract: | Entry represents a fundamental threat to cartels engaged in price fixing. We study the extent and effect of this behavior in the largest price fixing case in US history, which involves generic drugmakers. To do so, we link information on the cartel’s internal operations to regulatory filings and market data. We find that collusion induces significant entry, which in turn reduces prices. However, regulatory approvals delay most entrants by 2-4 years. We then estimate a structural model to assess counterfactual policies. We find that reducing regulatory delays by just 1-2 years equates to consumer compensating variation of $597 million-$1.52 billion. |
| JEL: | L11 L41 L65 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29886&r= |
| By: | Tessmann, R.; Elbert, R. |
| Date: | 2022–04–26 |
| URL: | http://d.repec.org/n?u=RePEc:dar:wpaper:132320&r= |
| By: | Zhijun Chen (Monash University, Department of Economics) |
| Abstract: | General Data Protection Regulation (GDPR) aims to protect consumer data privacy, however, its adverse effects have been widely documented. We present a new model for the analysis of consumer data acquisition under privacy regulation. We treat both data and analytics as separate strategic variables and consider the heterogeneity of privacy costs across consumers. Using this model to examine the impact of GDPR, we identify a market failure before GDPR and find that GDPR activates a market for data acquisition by imposing consent requirements on data acquisition. We further study the optimal design of the mechanism for consumer data acquisition and deliver important policy implications for implementing the social optimum. |
| Keywords: | Data acquisition, Privacy Costs, and Data Analytics |
| JEL: | D47 L11 L40 K21 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2022-07&r= |
| By: | Julio J. Elias; Nicola Lacetera; Mario Macis |
| Abstract: | Price surges often generate social disapproval and requests for regulation and price controls, but these interventions may cause inefficiencies and shortages. To study how individuals perceive and reason about sudden price increases for different products under different policy regimes, we conduct a survey experiment with Canadian and U.S. residents. Econometric and textual analyses indicate that prices are not seen just as signals of scarcity; they cause widespread opposition and strong and polarized moral reactions. However, acceptance of unregulated prices is higher when potential economic tradeoffs between unregulated and controlled prices are salient and when higher production costs contribute to the price increases. The salience of tradeoffs also reduces the polarization of moral judgments between supporters and opponents of unregulated pricing. In part, the acceptance of free price adjustments is driven by people’s overall attitudes about the function of markets and the government in society. These findings are corroborated by a donation experiment, and they suggest that awareness of the causes and potential consequences of price increases may induce less extreme views about the role of market institutions in governing the economy. |
| JEL: | C83 C91 D63 D91 I11 L50 Z1 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29963&r= |
| By: | Katarzyna Maciejowska; Bartosz Uniejewski; Rafa{\l} Weron |
| Abstract: | Forecasting electricity prices is a challenging task and an active area of research since the 1990s and the deregulation of the traditionally monopolistic and government-controlled power sectors. Although it aims at predicting both spot and forward prices, the vast majority of research is focused on short-term horizons which exhibit dynamics unlike in any other market. The reason is that power system stability calls for a constant balance between production and consumption, while being weather (both demand and supply) and business activity (demand only) dependent. The recent market innovations do not help in this respect. The rapid expansion of intermittent renewable energy sources is not offset by the costly increase of electricity storage capacities and modernization of the grid infrastructure. On the methodological side, this leads to three visible trends in electricity price forecasting research as of 2022. Firstly, there is a slow, but more noticeable with every year, tendency to consider not only point but also probabilistic (interval, density) or even path (also called ensemble) forecasts. Secondly, there is a clear shift from the relatively parsimonious econometric (or statistical) models towards more complex and harder to comprehend, but more versatile and eventually more accurate statistical/machine learning approaches. Thirdly, statistical error measures are nowadays regarded as only the first evaluation step. Since they may not necessarily reflect the economic value of reducing prediction errors, more and more often, they are complemented by case studies comparing profits from scheduling or trading strategies based on price forecasts obtained from different models. |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2204.11735&r= |
| By: | Ruhnau, Oliver; Schiele, Johanna |
| Abstract: | Electrolytic hydrogen complements renewable energy in many net-zero energy scenarios. In these long-term scenarios with full decarbonization, the “greenness” of hydrogen is without question. In current energy systems, however, the ramp-up of hydrogen production may cause additional emissions. To avoid this potential adverse effect, recently proposed EU regulation defines strict requirements for electrolytic hydrogen to qualify as green: electrolyzers must run on additional renewable generation, which is produced in a temporally and geographically congruent manner. Focusing on the temporal dimension, this paper argues in favor of a more flexible definition of green hydrogen, which keeps the additionality criterion on a yearly basis but allows for dispatch optimization on a market basis within that period. We develop a model that optimizes dispatch and investment of a wind-hydrogen system—including wind turbines, hydrogen electrolysis, and hydrogen storage—and apply the model to a German case study based on data from 2017-2021. Contrasting different regulatory conditions, we show that a flexible definition of green hydrogen can reduce costs without additional power sector emissions. By contrast, requiring simultaneity implies that a rational investor would build a much larger wind turbine, hydrogen electrolyzer, and hydrogen storage than needed. This leads to additional costs, underutilized resources, and a potential slow-down of green hydrogen deployment. We discuss that current trends in the energy transition are likely to amplify the economic and environmental benefits of a flexible definition of green hydrogen and recommend this as the way forward for a sustainable hydrogen policy. |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:253267&r= |
| By: | Frank Stähler; Leander Stähler |
| Abstract: | This paper scrutinizes the effects of the European Directive on Copyright in the Digital Single Market on platform competition in media markets. Platforms that are Online Content-Sharing Service Providers must have a license agreement with collective management organizations that control the content platform users may (or must not) upload to the platform. The paper shows that the new directive may imply market concentration and an aggregate welfare loss. The reason is that only users of the large platform will be allowed to upload content if the content asset controlled by a collective management organization is sufficiently valuable and if network effects are strong. |
| Keywords: | copyright protection, IPRs, content platforms, trade in services, digital services |
| JEL: | D43 F12 L86 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9597&r= |
| By: | Aditya Bhattacharjea; Oindrila De (Institute of Economic Growth, Delhi) |
| Abstract: | We analyze the cartel penalty regime in India in light of the literature on optimal penalty for restitution and deterrence, as well as current penalty practices in different jurisdictions. Our analysis reveals that though India’s Competition Act allows for a much harsher penalty than other jurisdictions in cartel cases, the actual practices followed by the Competition Commission of India (CCI) are often inconsistent and non-transparent, resulting in a large number of court cases and very low penalty recovery. This inconsistency also weakens the leniency programme adopted by the CCI in order to induce cartelists to come forward with evidence. Our analysis reveals that in the majority of cases, penalties fall short of restitution and deterrence benchmarks suggested by some earlier literature. We suggest that in order to enhance both punishment and deterrence, CCI should adopt a consistent profit and durationbased penalty regime already prescribed in the law, and issue penalty guidelines taking into account the lack of profit/turnover data, aggravating and mitigating factors, as well as aberrations such as the role trade associations in the Indian context. |
| Keywords: | Cartel penalty, Leniency, Optimal deterrence |
| JEL: | L40 L41 L44 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:awe:wpaper:424&r= |
| By: | Lana Friesen (School of Economics, University of Queensland, Brisbane, Australia); Ian A. MacKenzie (School of Economics, University of Queensland, Brisbane, Australia); Mai Phuong Nguyen (School of Economics, University of Queensland, Brisbane, Australia) |
| Abstract: | This article investigates how the existence of initially contestable property rights affects the efficiency of the Coase theorem. We design a two-stage experiment that incorporates a stage where property rights are initially allocated to participants followed by a stage that allows bargaining between participants. In stage one, participants endogenously choose their effort (and thus the probability) to appropriate the property rights before entering an unstructured bargaining game. We find the presence of costly appropriation activity to obtain the property rights makes it significantly less likely that the efficient outcome is reached. We introduce bargaining costs and find that allowing for symmetric bargaining costs has no impact on the likelihood of the efficient outcome being reached, whereas asymmetric bargaining costs between outcomes substantially reduces the likelihood of reaching an efficient outcome. |
| Keywords: | Coasean bargaining, transaction costs, experiment, property rights, contest |
| JEL: | C92 Q52 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:qld:uq2004:656&r= |
| By: | Werner Roeger (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)); Paul J. J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)) |
| Keywords: | Energy Import Embargo, EU, Russia, Gas Market, Duopoly |
| JEL: | F50 F51 N44 Q48 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:bwu:eiiwdp:disbei314&r= |