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on Regulation |
| By: | Kamesh Munagala; Yiheng Shen; Renzhe Xu |
| Abstract: | In this paper, we study third-degree price discrimination in a model first presented in Bergemann, Brooks, and Morris [2015]. Since such price discrimination might create market segments with vastly different posted prices, we consider regulating these prices, specifically, via restricting them to lie within an interval. Given a price interval, we consider segmentations of the market where a seller, who is oblivious to the existence of such regulation, still posts prices within the price interval. We show the following surprising result: For any market and price interval where such segmentation is feasible, there is always a different segmentation that optimally transfers all excess surplus to the consumers. In addition, we characterize the entire space of buyer and seller surplus that are achievable by such segmentation, including maximizing seller surplus, and simultaneously minimizing buyer and seller surplus. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.06023&r= |
| By: | Paul Heidhues (Heinrich Heine University Düsseldorf & DICE); Botond Kőszegi (University of Bonn); Philipp Strack (Yale University) |
| Abstract: | We develop models of markets with procrastinating consumers where competition operates — or is supposed to operate — both through the initial selection of providers and through the possibility of switching providers. As in other work, consumers fail to switch to better options after signing up with a firm, so at that stage they exert little downward pressure on the prices they pay. Unlike in other work, however, consumers are not keen on starting with the best available offer, so price competition fails at this stage as well. In fact, a competition paradox results: an increase in the number of firms or the intensity of marketing increases the frequency with which a consumer receives switching offers, so it facilitates procrastination and thereby potentially raises prices. By implication, continuous changes in marketing costs can, through a self-reinforcing process, lead to discontinuous changes in market outcomes. Sign-up deals do not serve their classically hypothesized role of returning ex-post profits to consumers, and in some cases even exacerbate the failure of price competition. Consumer procrastination thus emerges as a novel source of competition failure that applies in situations where other theories of competition failure do not. |
| Keywords: | Present bias, procrastination, price competition, competition failure, switching, subscription markets |
| JEL: | L11 L13 D11 D41 D43 D91 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:ajk:ajkdps:316&r= |
| By: | Francisco Jesús Guerrero López (Universidad de San Andrés); Paula Margaretic (Universidad de Chile); Lucía Quesada (Universidad de San Andrés); Federico Sturzenegger (Universidad de San Andrés) |
| Abstract: | In recent years, traditional banks have faced increasing competition from digital banks, fintechs, and big tech companies. This paper builds a framework to discuss optimal regulation within this more complex competitive landscape. To achieve this, we establish a model where banks compete with a single fintech. All players choose the degree of specialization. Banks hold a geographical advantage for some customers, while the fintech reaches all customers equally. Due to fixed costs, the market operates under imperfect competition, leading to parameter values where the regulator may seek to exclude non-bank intermediaries and others where the regulator may prefer to exclude banks, shifting intermediation exclusively to big tech companies. These distinct patterns align with observed competition in financial markets, where competition with big tech companies is intense in the customer business and less so in corporate lending. Our model contributes to the argument that, for certain types of lending, banking regulation tends to be overly restrictive towards non-bank intermediaries, resulting in significant welfare losses. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:327&r= |
| By: | Kaur, S.; Pollitt, M. G. |
| Abstract: | The policy of free electricity since 1997 is hugely popular with farmers in Punjab who are its biggest beneficiaries. Successive Governments have either lacked the courage or willingness to pursue market oriented electricity sector reforms even though the adverse con-sequences are increasingly visible. Over the past few decades, experts have expressed concern over the rapidly receding level of the water table and forecast of desertification, as well as the financial burden on the electricity distribution utility and government. Withdrawing free electricity and charging a price for electricity is a huge challenge. This research aims to estimate willingness to pay (WTP) for electricity and consider preferences for an annual free electricity limit with reward for meter installation and a novel incentive-penalty scheme designed to reward low consumption and discourage over-consumption. A discrete choice experiment assuming random probit and multinomial logit choice behaviour model is deployed to estimate the model parameters. We find that more than 82% of respondents are willing to accept an entitlement to a free electricity limit – with a reward for consuming less than this – rather than the current policy of free and unmetered electricity. We also find that the WTP for electricity increases with higher entitlements. Considering the WTP alone, the results suggest that increasing the electricity price can be acceptable to farmers. Further research is needed to develop a pricing strategy that considers the inter-relatedness between electricity entitlement, saving incentive and price. |
| Keywords: | Agriculture, energy water nexus, entitlement, incentive, groundwater, irrigation, electricity consumption, paddy, subsidy, electricity pricing, discrete choice, Punjab |
| JEL: | O13 Q1 Q4 Q5 Q12 Q24 Q25 Q28 Q48 Q57 |
| Date: | 2024–06–18 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camdae:2434&r= |
| By: | Ahsanuzzaman,; Eskander, Shaikh; Islam, Asad; Wang, Liang Choon |
| Abstract: | We use a randomized controlled trial in Bangladesh to test three types of non-price energy conservation strategies that influence electricity consumption of households: (i) advice on electricity conservation methods (knowledge treatment); (ii) (median) electricity consumption of others in the suburb (suburb comparison); and (iii) (median) electricity consumption of neighbors (neighbor comparison). We find that providing advice on saving energy could reduce households' electricity consumption and bills significantly. The effects are stronger for advice on electricity conservation methods than neighbor and suburb comparisons. The effects of providing information about own electricity consumption relative to neighbors’ electricity consumption is similar to the effects of giving information about own electricity consumption relative to electricity consumption of households in the same suburb. The effects among households who were inefficient users in neighbor and suburb comparison groups are almost as strong as those in the knowledge treatment group. The effects across all treatment groups become stronger over time as they receive repeated information. |
| Keywords: | electricity consumption; energy efficiency; field experiment; non-price information; social norms |
| JEL: | J1 |
| Date: | 2024–09–01 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:123900&r= |
| By: | Fotis, Panagiotis; Polemis, Michael |
| Abstract: | Explicit collusion, or cartel behavior, involves coordinated efforts among firms within a market to restrict competition for their mutual benefit. Recidivism in this context occurs when cartel members, previously fined for such activities, establish a new cartel in the future. This paper examines 111 cartel cases from various markets and periods in the US to assess the impact of recidivism on productivity growth. We define a recidivist as a repeat offender with at least two fines. Investigating the causality between cartel recidivism and total factor productivity (TFP) growth is crucial for several reasons. First, understanding this relationship helps policymakers and regulators design more effective anti-cartel enforcement strategies. Second, examining the causality between cartel recidivism and TFP growth provides insights into the broader economic impacts of anti-competitive practices. Ultimately, such investigations help in creating a more efficient and equitable economy, where market forces drive productivity improvements and sustainable economic growth. Our econometric findings drawn from OLS and quantile regression analysis indicate a negative relationship between recidivism and productivity growth. The rationale is that recidivism undermines the effectiveness of anti-cartel enforcement, which consequently hampers productivity growth in the affected markets. |
| Keywords: | Cartels; Recidivism; Competition Policy; Anti-Cartel Enforcement; TFP |
| JEL: | D24 K21 L41 |
| Date: | 2024–07–04 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121386&r= |
| By: | Jose M. Betancourt (Yale University); Ali Horta su (University of Chicago); Aniko …ry (Carnegie Mellon University); Kevin R. Williams (Yale University) |
| Abstract: | We study dynamic price competition between sellers offering differentiated products with limited capacity and a common sales deadline. In every period, firms simultaneously set prices, and a randomly arriving buyer decides whether to purchase a product or leave the market. Given remaining capacities, firms trade off selling today against shifting demand to competitors to obtain future market power. We provide conditions for the existence and uniqueness of pure-strategy Markov perfect equilibria. In the continuous-time limit, prices solve a system of ordinary differential equations. We derive properties of equilibrium dynamics and show that prices increase the most when the product with the lowest remaining capacity sells. Because firms do not fully internalize the social option value of future sales, equilibrium prices can be inefficiently low such that both firms and consumers would benefit if firms could commit to higher prices. We term this new welfare effect the Bertrand scarcity trap. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2394&r= |
| By: | G. Spano |
| Abstract: | We analyze the real effects of market power induced by ownership concentration in the presence of bankruptcy costs due to costly state verification. We find that, for an economy where the probability of bankruptcy and associated costs are sufficiently low, greater concentration of common ownership, which increases market power, reduces the cost of business credit, thereby positively affecting output. However, this positive effect is more than offset by the reduction in output and consumer surplus typically induced by market power. Conversely, in an economy where the probability of bankruptcy and associated costs are high, greater market power associated with increased ownership concentration can be beneficial in terms of welfare. This is because reducing the cost of credit also reduces aggregate bankruptcy costs, leading to a positive effect. Under these circumstances, there is an optimal level of common ownership that maximizes aggregate welfare. Comparing this with the U.S. economy, we find that this optimal level exists, but the actual level documented in the literature is higher, resulting in the observed negative effects. |
| Keywords: | Market power;financial friction;general equilibrium |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:cns:cnscwp:202410&r= |
| By: | Gary D. Libecap |
| Abstract: | The governance and transaction cost insights of Oliver Williamson (1975, 1985, 1996, 2010) and Ronald Coase (1937, 1992) have framed antitrust polices and firm management strategies. Transaction cost economics explain efficient governance adaptation. With a focus on private efficiency gains within firms and markets, however, neither Williamson nor Coase explore political exchange and rent-seeking. Coase (1960) sought to reform Pigouvian externality regulation based on transaction cost efficiencies. He called for assignment of property rights and bargaining, and for institutional comparisons of costs and benefits to reveal relative transaction cost and welfare advantages. His 1960 paper is among the most cited in economics, but his remedies have not been adopted as the primary approach in major US environmental policies. All US environmental and natural resource laws since 1970 are Pigouvian. Limited Coasean bargaining occurs late and around the edges of the laws. The efficiency advantages, welfare gains, and collaborative responses Coase suggested have not been achieved. The Magnuson-Stevens Fishery Act of 1976, enacted 16 years after Coase, used Pigouvian fishery regulation for 25 years, and upon failure, was replaced by abbreviated property rights and trade. Fishery economic values were lowered relative to what might have been possible. The Endangered Species Act of 1973 rejected previous Coasean legislation authorizing purchase of critical habitat and instead opted for uncompensated Pigouvian controls on private landowners, who held most endangered species. Landowners resisted, and only 3% of listed endangered species have recovered. There is no evidence of a weighing of comparative transaction costs between Coase or Pigou in enacting any legislation. Rent-seeking via political bargaining among interest groups, politicians, and agency officials explains many of the observed patterns in externality regulation. The analysis suggests that transaction cost economics play a lesser role in the political arena. |
| JEL: | K11 K32 N42 N5 N52 N92 Q52 Q53 Q57 Q58 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32603&r= |
| By: | Kayleigh Barnes; Sherry A. Glied; Benjamin R. Handel; Grace Kim |
| Abstract: | Medical provider price transparency is often touted as a way to lower health care spending. But the impact of price transparency is theoretically ambiguous: it could lower health care spending via increased consumer price shopping or improved insurer bargaining but could also raise health care prices via improved provider bargaining or provider collusion. We conduct a randomized-controlled trial to examine the impact of a state-wide medical charge transparency tool in outpatient provider markets in New York State. In the experiment, individual providers’ billed charges (list prices) were released randomly at the level of the procedure and three-digit zipcode. We use a comprehensive commercial claims database to assess the impact of this intervention and find that it leads to a small increase in overall billed charges (+0.75%). This effect is concentrated among low-priced providers in markets with low out-of-network spending, suggesting that the transparency tool improves provider pricing information. We find no evidence of quantity effects. Results do not vary consistently across specialty groups, market concentration, frequency of service use, or frequency of website use. These results are consistent with price transparency having a minimal effect on consumer shopping while slightly improving provider information about competitors’ charges. |
| JEL: | I11 L1 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32580&r= |
| By: | Demekas, Dimitri G.; Grippa, Pierpaolo |
| Abstract: | In ‘Embracing the Brave New World: A Response to Demekas and Grippa’, a response to our article ‘Walking a Tightrope: Financial Regulation, Climate Change, and the Transition to a Low-Carbon Economy’, both published in the Journal of Financial Regulation, Gruenewald, Knijp, Schoenmaker, and van Tilburg claim that climate risk is a clear and present danger to financial stability that justifies imposing higher capital requirements on supervised firms. Until the current prudential risk framework is revised to fully capture climate risk, they advocate ad hoc measures, such as adjustments to risk weights, which, they believe, would have the desired effect. In this article, we argue that these claims are misguided. Given the nature of climate risk, risk assessment models cannot provide a reliable basis for calibrating capital requirements. On the basis of the evidence, prudential tools would have only a negligible impact on the transition. And the idea of adjusting risk weights for climate exposures has been abandoned—for good reasons. Ultimately, there is nothing financial regulation can do about the energy transition that an appropriately designed carbon tax cannot do better. Central banks and financial regulators should resist the pressure to take on additional responsibilities that are essentially political and that they cannot properly discharge. |
| Keywords: | financial stability; financial regulation; climate change; central banking; OUP deal |
| JEL: | F3 G3 |
| Date: | 2024–06–11 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:123012&r= |
| By: | Rojas Méndez, Ana María; Scartascini, Carlos |
| Abstract: | Behavioral biases often lead to suboptimal decisions, a vulnerability that extends to policymakers who operate under conditions of fatigue, stress, and time constraints and with significant implications for public welfare. While behavioral economics offers strategies like default adjustments to mitigate decision-making costs, deploying these policy interventions is not always feasible. Thus, enhancing the quality of policy decision-making is crucial, and evidence suggests that targeted training can boost job performance among policymakers. This study evaluates the impact of a behavioral training course on policy decision-making through a randomized experiment and a survey test that incorporates problem-solving and decision-making tasks among approximately 25, 000 participants enrolled in the course. Our findings reveal a significant improvement in the treated group, with responses averaging 0.6 standard deviations better than those in the control group. Given the increasing prevalence of such courses, this paper underscores the potential of behavioral training in improving policy decisions and advocates for further research through additional experimental studies. |
| Keywords: | Experimental Design;behavioral economics;Training;public policy;Government officials |
| JEL: | H83 Z18 |
| Date: | 2024–04 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:13476&r= |