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on Regulation |
| By: | Joshua S. Gans |
| Abstract: | The adoption of artificial intelligence (AI) prediction of demand by a monopolist firm is examined. It is shown that, in the absence of AI prediction, firms face complex trade-offs in setting price and quantity ahead of demand that impact on the returns of AI adoption. Different industrial environments with differing flexibility of prices and/or quantity ex post, also impact on AI returns as does the time horizon of AI prediction. While AI has positive benefits for firms in terms of profitability, its impact on average price and quantity, as well as consumer welfare, is more nuanced and critically dependent on environmental characteristics. |
| JEL: | D21 D81 O31 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29995&r= |
| By: | Karel Janda (Institute of Economic Studies, Faculty of Social Sciences, Charles University & Faculty of Finance and Accounting, Prague University of Economics and Business, Prague, Czech Republic); Salim Turdaliev (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic) |
| Abstract: | This paper investigates the relationship between the increasing-block-tariffs (IBT) for electricity, and the propensity of households to purchase dirty fuels. We combine RLMS-HSE, a panel household data, with the introduction of the IBT schemes for residential electricity in three experimental regions of Russia to analyze this relationship. Using differences-in-differences empirical specifications we find that the propensity to purchase dirty fuels has increased in the regions where the IBT schemes were introduced. Depending on the specification, and the type of household we find that the size of the increase varies from more than 3-percentage points to about 15-percentage points. This accounts for a roughly 70% increase, and a 90% increase respectively compared to the similar households in the regions that did not implement IBT pricing schemes for residential electricity. The empirical evidence from this paper suggests that the environmental benefits that result from the implementation of the IBT pricing schemes may be overstated if the possible negative environmental impacts of switching to more affordable, but hazardous energy sources by the population as a response to the tariff-shifts are not taken into account by the policymakers. |
| Keywords: | residential electricity pricing; increasing-block-tariffs; CO2 emissions; dirty fuels; transition economy; natural experiment |
| JEL: | Q41 Q48 L98 L94 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2022_08&r= |
| 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. |
| Keywords: | personalized pricing, competition, price discrimination, consumer data |
| JEL: | D43 D82 L13 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:112988&r= |
| By: | Julio 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. |
| Keywords: | price surges, price controls, preferences, morality, tradeoffs |
| JEL: | C91 D63 D91 I11 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9712&r= |
| By: | Inderst, Roman; Thomas, Stefan |
| Abstract: | We lay out a roadmap for how the legislator could create a framework of “sustainability corridors” that would allow to rely on the ancillary restraints doctrine to make antitrust law more accommodating of sustainability considerations. We show how this avoids the pitfalls of a multi-goals approach, under which it would be left to antitrust authorities and courts to reconcile sustainability and competition objectives, while out-of-market benefits (externalities), that would escape even a broad consumer welfare approach, can still be accounted for. Our proposal sets out specific requirements for such sustainability corridors that ensure that the ensuing antitrust assessment is governed by a strict and quantifiable indispensability test. Specifically, we discuss three such instances: specific sustainability obligations placed on individual firms, which may however require collective actions; specific mandates that are targeted at the respective industry rather than individual firms; and policy objectives that are not targeted at individual firms or industries but provide a metric for the measurement of sustainability benefits (e.g., by way of conducting an abatement cost analysis). |
| Keywords: | sustainability,ancillary restraints doctrine |
| JEL: | D4 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:253671&r= |
| By: | Karakosta, Ourania; Petropoulou, Dimitra |
| Abstract: | Several EU member states have introduced national systems of Tradable Green Certificates (TGCs), which stipulate the percentage of total energy consumption to be obtained from renewable sources. The Renewable Energy Directive sets a binding EU-wide target of 32% but without imposing legally binding national targets. To assess incentives for the choice of national percentage requirements we develop a two-country, Cournot duopoly model of the electricity market, with one "green" and one "black" supplier in each country. We show that nationally determined percentage requirements do not align with the EU-welfare maximizing renewable energy target due to cross-country externalities arising from trade in electricity and the market price of TGCs and examine the direction of misalignment. Our results cast doubts on the feasibility of EU renewable energy policy in the absence of binding national targets and inform how national targets should be shaped. |
| Keywords: | Elsevier deal |
| JEL: | R14 J01 |
| Date: | 2022–04–27 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:114973&r= |
| By: | Carsten Hefeker |
| Abstract: | The paper analyzes under what circumstances policymakers experiment with policies with uncertain outcomes, when they prefer to imitate policies initiated in other countries, and when they prefer to coordinate policies internationally. Policymakers have private costs of active policies and compete internationally in a yardstick competition which gives rise to a potential distortion between what citizens want and what policymakers do. I find that policymakers’ policies as well as regime choice deviate from what citizens want but that an increase in uncertainty about policy outcomes decreases this distortion. |
| Keywords: | uncertainty, policy competition and coordination, yardstick competition |
| JEL: | D78 F42 F59 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9736&r= |
| By: | Inderst, Roman; Obradovits, Martin |
| Abstract: | In a variety of purchasing situations, consumers may focus primarily on headline prices, ignoring the full costs associated with acquiring and maintaining a product or service contract. Even when this is the case, it is widely believed that intense competition would adequately protect consumers (the so-called “waterbed effect”). However, in a tractable model of imperfect competition and vertical differentiation, we show that when consumers exhibit context-dependent preferences, competition may rather exacerbate their and society’s harm. Then, consumer protection policy must sufficiently constrain hidden costs and fees so that competition, along with high-quality firms’ incentives to educate consumers, can restore efficiency. |
| Keywords: | shrouded charges,hidden fees,price competition,shopping,salience,unshrouding |
| JEL: | D11 D18 D21 D43 D60 L11 L13 L15 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:253666&r= |
| By: | Koop, Christel; Lodge, Martin |
| Abstract: | The regulatory state that developed in Britain and elsewhere in the 1980s and 1990s was characterised by independent agencies, efficiency-based objectives, ‘econocratic’ analysis, and an emphasis on output- and outcome-based legitimacy. Yet, with economic regulation becoming increasingly politicised, the ‘responsible’ regulatory state has come under pressure. How have British regulators adapted to these changes? Building primarily on interviews with regulators, we find that the regulatory state has become more responsive to broader political and public concerns. Key responsible features have been maintained, but new responsive layers have been added, contributing to a broadening of decision-making and conceptions of regulation, a greater role for communication and outward-oriented activities, and a widening of stakeholder engagement and accountability. Though supporting theories of organisational reputation and survival, the (ongoing) changes raise new questions about how much ‘political space’ independent economic regulators can feasibly and legitimately occupy. |
| Keywords: | regulation; regulatory state; agencies; responsiveness; stakeholder engagement; Britain |
| JEL: | R14 J01 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:106179&r= |
| By: | Inderst, Roman; Thomas, Stefan |
| Abstract: | The failure to fully internalize externalities from production and consumption, including on future generations, is supposed to be at the core of the perceived failure to ensure (ecological) sustainability within the realm of antitrust enforcement. As policymakers put increasing pressure on competition agencies to account for sustainability in their enforcement practice, it becomes pivotal to define whether and, if so, how such externalities can be incorporated into competition analysis. Rather than positing that sustainability should constitute a goal in itself, we explore how sustainability can be incorporated within a consumer welfare analysis. Our paper makes a key distinction between what we term an individualistic and a collective consumer welfare analysis. Within an individualistic consumer welfare analysis, consumers’ willingness-to-pay is measured ceteris paribus, holding other consumers’ choices fixed. We explore how, e.g., through contingent valuation and conjoint analysis, consumers’ appreciation of sustainability benefits and with it the reduction of externalities on others can be elicited. Specifically, we discuss how the context-sensitivity of extracted willingness-to-pay provides both challenges and opportunities for antitrust enforcement in the context of sustainability measures. In a collective consumer welfare analysis, consumers may express their willingness-to-pay also for the choices of others and, thereby, also for the reduction of externalities on themselves. Borrowing from environmental and resource economics, we also discuss more indirect ways of incorporating such externalities. And we critically assess the possibility of “laundering” consumers’ sustainability preferences in the light of supposed biases and cognitive limitations. |
| Keywords: | sustainability,externalities,willingness-to-pay |
| JEL: | A13 K21 K32 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:253668&r= |
| By: | Matias Iaryczower; Santiago Oliveros |
| Abstract: | We consider dynamic processes of coalition formation in which a principal bargains sequentially with a group of agents. This problem is at the core of a variety of applications in economics and politics, including a lobbyist seeking to pass a bill, an entrepreneur setting up a start-up, or a firm seeking the approval of corrupt bureaucrats. We show that when the principal’s willingness to pay is high, strengthening the bargaining position of the agents generates delay and reduces agents’ welfare. This occurs in spite of the lack of informational asymmetries or discriminatory offers. When this collective action problem is severe enough, agents prefer to give up considerable bargaining power in favor of the principal. |
| JEL: | C78 D7 D71 D72 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29984&r= |
| By: | Ruth Cohen; Oz Shy; Joanna Stavins |
| Abstract: | The use of paper instruments—cash and checks—has been declining in the United States, and consumers have been gradually replacing paper with cards and electronic payments. Stavins (2021) examines the evolution of payments from paper to cards and electronic payments, while Shy (2020) shows the payments landscape across merchant types. This paper combines the cross-sectional analysis across merchants with the aggregate time series study to analyze the evolution of consumer payments by merchant type. Using data from a representative diary survey of US consumers collected annually over the past several years, we examine changes for each merchant type to assess which transactions shifted from paper to electronic payments and from in-person to remote transactions. We find that cash use declined faster than check use, in large part because transactions shifted from in person to remote. While the cash-use share of transactions dropped for almost all merchant types, changes in check use were much more heterogenous across merchants. COVID-19 accelerated the payments evolution away from cash for some merchant types, as their drop in cash payments was much larger during the pandemic than prior to it. Merchants whose transactions are typically conducted in person experienced the largest decline in cash payments during the pandemic. Regression results show that the probability of using either cash or checks declined significantly in 2019 and 2020, even after controlling for merchant types, the dollar value of transactions, and consumers’ socio-demographic attributes. |
| Keywords: | consumer payments; merchant category; cash; check; cards; electronic payments; COVID-19 |
| JEL: | D12 D14 E42 |
| Date: | 2022–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:94224&r= |
| By: | Calum Robertson (CEREGE - CEntre de REcherche en GEstion - EA 1722 - IAE Poitiers - Institut d'Administration des Entreprises (IAE) - Poitiers - Université de Poitiers - Université de Poitiers - ULR - La Rochelle Université); Sylvain Dejean (CEREGE - CEntre de REcherche en GEstion - EA 1722 - IAE Poitiers - Institut d'Administration des Entreprises (IAE) - Poitiers - Université de Poitiers - Université de Poitiers - ULR - La Rochelle Université); Raphaël Suire (Nantes Univ - IAE Nantes - Nantes Université - Institut d'Administration des Entreprises - Nantes - Nantes Université - pôle Sociétés - Nantes Univ - Nantes Université) |
| Abstract: | Short-term rental platforms, led by Airbnb, have disrupted the tourism accommodation industry over the last decade. This disruption has sometimes come along with unwanted long lasting effects on the urban dynamics of cities, and it has encouraged policy-makers to intervene. However, little is known about how effective such interventions are. This paper empirically evaluates the impact Bordeaux's regulation has had on STR activity through both a Differences-indifferences and a spatial discontinuity design. We find that regulation has had a reductive effect of over 316 rented days per month per district on average. This equates to over half of a preregulation standard deviation and 27 thousand nights spent per month in STRs across the city. However, the city's attempts to limit activity stemming from commercial listings yields mixed results as compliant homesharing listings also seem to have modified their behaviour. Additionally, analysis at the city border points towards the existence of potential spillover effects on the suburbs, further paving the way for discussion about the effectiveness of one-size-fits-all STR policy design. |
| Keywords: | Housing,Spatial Discontinuity,Tourism,Short-term rental,Airbnb,Regulation,Differences-indifferences |
| Date: | 2022–03–28 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03622113&r= |
| By: | Florian Ederer; Bruno Pellegrino |
| Abstract: | We study the welfare implications of the rise of common ownership in the United States from 1994 to 2018. We build a general equilibrium model with a hedonic demand system in which firms compete in a network game of oligopoly. Firms are connected through two large networks: the first reflects ownership overlap, the second product market rivalry. In our model, common ownership of competing firms induces unilateral incentives to soften competition. The magnitude of the common ownership effect depends on how much the two networks overlap. We estimate our model for the universe of U.S. public corporations using a combination of firm financials, investor holdings, and text-based product similarity data. We perform counterfactual calculations to evaluate how the efficiency and the distributional impact of common ownership have evolved over time. According to our baseline estimates the welfare cost of common ownership, measured as the ratio of deadweight loss to total surplus, has increased nearly tenfold (from 0.3% to over 4%) between 1994 and 2018. Under alternative assumptions about governance, the deadweight loss ranges between 1.9% and 4.4% of total surplus in 2018. The rise of common ownership has also resulted in a significant reallocation of surplus from consumers to producers. |
| JEL: | D43 D85 E23 G23 G34 L16 L21 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30004&r= |
| By: | Inderst, Roman; Obradovits, Martin |
| Abstract: | Manufacturers frequently resist heavy discounting of their products by retailers, especially when they are used as so-called loss leaders. Since low prices should increase demand and manufacturers could simply refuse to fund deep price promotions, such resistance is puzzling at first sight. We explain this phenomenon in a model in which price promotions cause shoppers to potentially reassess the relative importance of quality and price, as they evaluate these attributes relative to a market-wide reference point. With deep discounting, quality can become relatively less important, eroding brand value and the bargaining position of brand manufacturers. This reduces their profits and potentially even leads to a delisting of their products. Linking price promotions to increased one-stop shopping and more intense retail competition, our theory also contributes to the explanation of the rise of store brands. |
| Keywords: | loss leading,relative thinking,reference-depending preferences,product positioning,vertical differentiation,price competition,price promotion |
| JEL: | D11 D22 D43 L11 L15 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:253667&r= |
| By: | Philippe Choné; Laurent Linnemer |
| Abstract: | We study the behavior of a firm that consistently maximizes a misspecified profit function. We provide an equilibrium concept where the misspecification error remains undetected. We examine the uniqueness and stability of the equilibria. The model of the price-taking firm belongs to this class. In one of these models, the cost-taking firm, the equilibrium price increases with fixed costs. The behavioural price can be lower or higher than the rational price, meaning consumers can benefit from the lack of rationality. Finally in a long-run perspective where the cost is endogenous, we show that the behavioral and rational firms end with the same level of output. |
| Keywords: | behavioural model of a firm, misspecified profit function, fixed costs |
| JEL: | L12 L21 L23 L25 M41 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9718&r= |
| By: | Junius, Kerstin; Honkkila, Juha; Jonker, Nicole; Rusu, Codruta; Devigne, Lucas; Kajdi, László |
| Abstract: | The paper provides an overview of studies on the social and private costs of retail payments conducted since 2013 in nine EU countries and collates the results obtained. Social costs of retail payments are the overall costs resulting from providing payment services to society and deriving from the resource costs incurred by all parties along the payment chain. Private costs, in contrast, are the costs incurred by the individual stakeholder only, such as banks and other payment intermediaries. Understanding the social and private costs of retail payments is crucial for assessing the impact of the rapidly changing retail payment landscape, such as the shift to electronic payments, and for designing strategies for moving towards cost efficient retail payments. JEL Classification: D23, D24, O52, E42 |
| Keywords: | payment instruments, private costs, retail payments, social costs |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2022294&r= |
| By: | Jackie M.L. Chan; Michael Irlacher; Michael Koch (Aarhus University) |
| Abstract: | This paper investigates the effects of mergers on the product mix of multiproduct firms. Thus, we open the black box of post-merger efficiency improvements to reveal a new margin of adjustment along the product dimension. We analyze horizontal mergers in a theoretical model where oligopolistic firms employ a flexible manufacturing technology and allocate assets between differentiated varieties. After a merger, acquirers drop products from their consolidated domestic product portfolio and reallocate assets towards core varieties. We further demonstrate that such merger-induced efficiency gains imply greater activity in foreign markets. Using detailed Danish register data, we document novel facts regarding mergers and multiproduct firms and find empirical evidence strongly supporting the model’s predictions. Our results show that the number of domestic products of the post-merger acquirer falls relative to the sum of the premerger acquirer and target, that skewness of domestic sales rises towards core products, and that export activity increases. |
| Keywords: | Multiproduct firms; Horizontal mergers; Flexible manufacturing; Exports; Product mix; Event Study |
| JEL: | F12 F14 G34 L22 L25 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:jku:econwp:2022-03&r= |
| By: | Elias (Centre for Competition Policy and School of Law, University of East Anglia) |
| Abstract: | In the recent CK Telecoms (Case T-399/16) judgment, the General Court annulled the European Commission’s decision to block the 4-to-3 telecom merger Hutchison3G UK/Telefónica UK. This watershed case is set to curtail the Commission’s ability to challenge future mergers in concentrated markets and proposes a fundamental reshape of the analysis of unilateral effects in the absence of dominance. This article shows that CK Telecoms advances six propositions that form the foundations of a new frame of reference for the analysis of unilateral effects under the EU Merger Regulation. This new framework has been welcomed by commentators as a long-overdue recognition that ‘the law’ trumps the Commission’s administrative discretion and as a vindication of the ‘more economic approach’. Based on a thorough review of 15 years of merger enforcement in the mobile telecommunication sector, this article challenges this account by debunking both the ‘rule of law’ and the ‘more economic approach’ arguments in support of the new framework. It instead demonstrates that each of the six principles advanced by CK Telecoms neither constitutes a reaffirmation of the ‘law’, nor aligns EU merger enforcement with the economic analysis of unilateral effects. In critically reflecting on the new framework laid down in CK Telecoms, this article formulates a number of policy proposals as building blocks for an alternative frame of reference that would preserve the effectiveness of EU merger enforcement in unilateral effects cases while enhancing its legal certainty. |
| Keywords: | Competition Law, Antitrust, Compliance, Cartels. |
| Date: | 2022–06–06 |
| URL: | http://d.repec.org/n?u=RePEc:uea:ueaccp:2021_07&r= |
| By: | Mario Kendziorski; Leonard G\"oke; Christian von Hirschhausen; Claudia Kemfert; Elmar Zozmann |
| Abstract: | In this paper, we explore centralized and more decentral approaches to succeed the energiewende in Germany, in the European context. We use the AnyMOD framework to model a future renewable-based European energy system, based on a techno-economic optimization, i.e. cost minimization with given demand, including both investment and the subsequent dispatch of capacity. The model includes 29 regions for European countries, and 38 NUTS-2 regions in Germany. First the entire energy system on the European level is optimized. Based on these results, the electricity system for the German regions is optimized to achieve great regional detail to analyse spatial effects. The model allows a comparison between a stylized central scenario with high amounts of wind offshore deployed, and a decentral scenario using mainly the existing grid, and thus relying more on local capacities. The results reveal that the cost for the second optimization of these two scenarios are about the same: The central scenario is characterized by network expansion in order to transport the electricity from the wind offshore sites, whereas the decentral scenario leads to more photovoltaic and battery deployment closer to the areas with a high demand for energy. A scenarios with higher energy efficiency and lower demand projections lead to a significant reduction of investment requirements, and to different localizations thereof. |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2205.09066&r= |