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on Regulation |
| By: | Christina Gravert |
| Abstract: | This paper presents new evidence on the question: Why don’t consumers switch electricity contracts? By conducting a large-scale survey experiment with 3% of the Danish working-age population, I have gathered data on respondents’ factual knowledge of the retail electricity market, their beliefs, preferences, and intentions to switch providers. Crucially, I can link their intentions with actual switching behaviors using nationwide smart meter data. My findings reveal a enormous gap between switching intentions and actions. This gap is exacerbated by my experimental interventions which 1) provide information about savings and switching costs and 2) decrease switching costs by offering free access to a switching service. A majority of consumers leaves money on the table by not switching, despite their stated intentions to switch. The low switching rates of on average 1.2% per month cannot be explained by biased beliefs or high switching costs. Demographics do not explain switching behavior, but personality traits such as risk aversion, trust, and a tendency to avoid procrastination matter. These results raise the fundamental question: Why should consumers actively choose electricity contracts? Instead, policymakers should consider implementing smart defaults, for which I find strong support from consumers. |
| Keywords: | consumer inertia, electricity markets, switching, field experiment |
| JEL: | C83 D03 D12 D83 L13 L43 L94 L98 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11139&r= |
| By: | Cristian Chica; Yinglong Guo; Gilad Lerman |
| Abstract: | Algorithmic price collusion facilitated by artificial intelligence (AI) algorithms raises significant concerns. We examine how AI agents using Q-learning engage in tacit collusion in two-sided markets. Our experiments reveal that AI-driven platforms achieve higher collusion levels compared to Bertrand competition. Increased network externalities significantly enhance collusion, suggesting AI algorithms exploit them to maximize profits. Higher user heterogeneity or greater utility from outside options generally reduce collusion, while higher discount rates increase it. Tacit collusion remains feasible even at low discount rates. To mitigate collusive behavior and inform potential regulatory measures, we propose incorporating a penalty term in the Q-learning algorithm. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.04088&r= |
| By: | Nahim Bin Zahur |
| Abstract: | The liquefied natural gas (LNG) industry is characterized by systematic inter-regional price differentials, raising the question of whether sellers price discriminate. This paper measures market power in the LNG spot market and studies how market power influences pricing, trade and welfare. I develop a novel method for inferring market conduct that utilizes information on sellers’ pricing and quantity decisions across multiple geographically segmented markets. My test for market conduct is based on the observation that sellers exercising market power engage in third-degree price discrimination, whereas sellers behaving competitively do not. Using data from 2006 to 2017 on spot market trade flows, spot prices, shipping costs and seller capacities, I estimate a structural model of LNG trade and pricing that incorporates spatial differentiation, capacity constraints and trade frictions and flexibly nests different models of seller market power. I find that seller decisions are consistent with a Cournot model and unlikely to be generated by a competitive model. The total deadweight loss from market power is estimated to be USD 12 billion, or about 4.5% of total revenue. I find that market power plays a key role in exacerbating inter-regional price differentials. |
| Keywords: | Market Power, Price Discrimination, Conduct Parameter, Contracts, Liquefied Natural Gas |
| JEL: | D23 L13 D43 Q41 |
| Date: | 2023–02 |
| URL: | https://d.repec.org/n?u=RePEc:qed:wpaper:1517&r= |
| By: | Nahim Bin Zahur |
| Abstract: | In many capital-intensive markets, sellers sign long-term contracts with buyers before committing to sunk cost investments. Ex-ante contracts mitigate the risk of under-investment arising from ex-post bargaining. However, contractual rigidities reduce the ability of firms to respond flexibly to demand shocks. This paper provides an empirical analysis of this trade-off, focusing on the liquefied natural gas (LNG) industry, where long-term contracts account for over 70% of trade. I develop a model of contracting, investment and spot trade that incorporates bargaining frictions and contractual rigidities. I structurally estimate this model using a rich dataset of the LNG industry, employing a novel estimation strategy that utilizes the timing of contracting and investment decisions to infer bargaining power. I find that without long-term contracts, sellers would decrease investment by 27%, but allocative efficiency would significantly improve. Negative contracting externalities lead to inefficient over-use of long-term contracts in equilibrium. Policies aimed at eliminating contractual rigidities reduce investment by 16%, but raise welfare by 9%. |
| Keywords: | Long-term Contracts, Spot Markets, Under-investment, Nash Bargaining, Contracting Externalities, Market Power, Liquefied Natural Gas |
| JEL: | D22 D23 L14 L22 L42 Q41 |
| Date: | 2024–01 |
| URL: | https://d.repec.org/n?u=RePEc:qed:wpaper:1518&r= |
| By: | Sukhgeet Kaur; Michael G. Pollitt |
| 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 |
| URL: | https://d.repec.org/n?u=RePEc:enp:wpaper:eprg2407&r= |
| By: | Devin Mounts; Robin M. Cross |
| Abstract: | This paper considers the reliability problem in energy-only markets. Following widespread blackouts in 2011, Texas introduced a reliability price incentive to attract two GW of net additional natural gas-generating capacity. The incentive is unusual because energy buyers pay the incentive directly to producers in a real-time spot market. The program has created $13 billion in direct payments to generators annually since 2015 and is now being implemented or considered in several major energy markets in the US and abroad. We assess the incentive's impact on the Texas market from three perspectives: First, we derive the incentive's equilibrium effect on the electricity price in a monopolistic market from first principles using a standard partial equilibrium economic model. We then empirically test whether the incentive encouraged net entry into the market or the generating applicant pool, controlling for market and climatic conditions using monthly capacity data. Finally, we look for direct evidence of an incentive response among active traders using real-time market trading data. The three approaches suggest buyers and producers cancel out the incentive, and the price-only program does not encourage new generation capacity to enter the market. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.15687&r= |
| By: | Michele Fioretti; Junnan He; Jorge Tamayo |
| Abstract: | We study firms' strategic interactions when each firm may own multiple production technologies, each with its own marginal cost and capacity. Increasing industry concentration by reallocating non-efficient capacity to the largest and most efficient firm can decrease market prices as it incentivizes the firm to outcompete its rivals. However, with large reallocations, the standard monotonic relationship between concentration and prices re-emerges as competition weakens due to the rival's lower capacity. Thus, we demonstrate a U-shaped relationship between market prices and industry concentration when firms are diversified. This result does not rely on economies of scale or scope. We find consistent evidence from the Colombian wholesale energy market, where strategic firms are diversified with fossil-fuel and renewable technologies, exploiting exogenous variation in renewable capacities. Our findings not only apply to the green transition but also to other industries and suggest new insights for antitrust policies. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.03504&r= |
| By: | Elisabeth Christen; Birgit Meyer; Harald Oberhofer; Julian Hinz; Katrin Kamin; Joschka Wanner |
| Abstract: | The creation of uniform, legally binding norms and standards is an essential basis for the functioning of the EU single market, which at the same time is increasingly spread beyond the EU's borders through international trade relations. The shaping of global standards and regulations according to EU directives even beyond the EU's borders represents an important competitive advantage of the EU. The EU also manages to impose rules, regulations and standards only through market mechanisms in third countries without international treaties or agreements. This has in many areas contributed to the "Europeanisation" of important aspects of global trade. In the academic literature, this regulatory influence of the EU is defined as the "Brussels Effect". The focus of this study is to give a comprehensive overview of the Brussels Effect and to analyse the linkages regarding EU trade policy, outlining to what extent a Brussels Effect can be observed in the network of EU trade agreements. Based on a comprehensive and broad identification of the Brussels Effect, this study aims to quantify the trade effects in terms of the leading role in shaping global standards and regulations for the EU and Austria and to qualitatively identify further areas in which untapped potentials of a "Brussels Effect 2.0" seem possible in the context of EU trade policy. |
| Date: | 2022–10 |
| URL: | https://d.repec.org/n?u=RePEc:wsr:ecbook:y:2022:m:10:i:viii-007&r= |
| By: | Chongwoo Choe; Noriaki Matsushima; Shiva Shekhar |
| Abstract: | We study the GDPR's opt-in requirement in a model with a firm that provides a digital service and consumers who are heterogeneous in their valuations of the firm's service as well as the privacy costs incurred when sharing personal data with the firm. We show that the GDPR boosts demand for the service by allowing consumers with high privacy costs to buy the service without sharing data. The increased demand leads to a higher price but a smaller quantity of shared data. If the firm's revenue is largely usage-based rather than data-based, then both the firm's profit and consumer surplus increase after the GDPR, implying that the GDPR can be welfare-improving. But if the firm's revenue is largely from data monetization, then the GDPR can reduce the firm's profit and consumer surplus. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1246&r= |
| By: | Igor Sadoune; Marcelin Joanis; Andrea Lodi |
| Abstract: | This paper introduces the Minimum Price Markov Game (MPMG), a dynamic variant of the Prisoner's Dilemma. The MPMG serves as a theoretical model and reasonable approximation of real-world first-price sealed-bid public auctions that follow the minimum price rule. The goal is to provide researchers and practitioners with a framework to study market fairness and regulation in both digitized and non-digitized public procurement processes, amidst growing concerns about algorithmic collusion in online markets. We demonstrate, using multi-agent reinforcement learning-driven artificial agents, that algorithmic tacit coordination is difficult to achieve in the MPMG when cooperation is not explicitly engineered. Paradoxically, our results highlight the robustness of the minimum price rule in an auction environment, but also show that it is not impervious to full-scale algorithmic collusion. These findings contribute to the ongoing debates about algorithmic pricing and its implications. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.03521&r= |
| By: | Liran Einav; Amy Finkelstein; Pietro Tebaldi |
| Abstract: | Health insurance is increasingly provided through managed competition, in which subsidies for consumers and risk adjustment for insurers are key market design instruments. We illustrate that subsidies offer two advantages over risk adjustment in markets with adverse selection. They provide greater flexibility in tailoring premiums to heterogeneous buyers, and they produce equilibria with lower markups and greater enrollment. We assess these effects using demand and cost estimates from the California Affordable Care Act marketplace. Holding government spending fixed, we estimate that subsidies can increase enrollment by 16 percentage points (76%) over risk adjustment, while all consumers are weakly better off. |
| JEL: | G22 G28 H51 I13 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32586&r= |
| By: | Lee, Sangwon; Lee, Hanbin; Xu, Ian; Sumner, Daniel A. |
| Keywords: | Agricultural And Food Policy, Demand And Price Analysis |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea22:343911&r= |
| By: | Gong, Binlei; Li, Haoyang; Lin, Liguo; Ling, Hanxiang |
| Keywords: | Environmental Economics And Policy, Production Economics, Agricultural And Food Policy |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea22:343700&r= |
| By: | Kate Ho; Ariel Pakes |
| Abstract: | Our calculations indicate that currently proposed U.S. policies to reduce pharmaceutical prices, though particularly beneficial for low-income and elderly populations, could dramatically reduce firms’ investment in highly welfare-improving R&D. The U.S. subsidizes the worldwide pharmaceutical market. One reason is U.S. prices are higher than elsewhere. If each drug had a single international price across the highest-income OECD countries, and total pharmaceutical firm profits were held fixed, then U.S. prices would fall by half and every other country’s prices would increase (by 28 to 300%). International prices would maintain firms’ R&D incentives and more equitably share the costs of pharmaceutical research. |
| JEL: | I18 L20 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32606&r= |
| By: | Nikhil Datta |
| Abstract: | This paper studies monopsony power in a low pay labour market and explores its determinants. I emphasise the role of the spatial distribution of activity and workers' distaste for commuting in generating imperfect substitutability between jobs, and heterogeneity in monopsony power. To formalise the role of commutes in generating monopsony power I develop a job search model where utility depends on wages, commutes and an idiosyncratic component. The model endogenously defines probabilistic spatial labour markets which are point specific and overlapping, and generates labour supply to the firm elasticities which vary across space. Distaste for commuting is shown to increase monopsony power, but does so heterogeneously, increasing monopsony power in rural areas more than in denser urban ones. Using detailed applicant data for a firm with hundreds of establishments across the UK, coupled with two sources of job-establishment level exogenous wage variation I estimate the model parameters and show that commutes generate considerable spatial heterogeneity in monopsony power and are responsible for approximately 1/3 of the total wage markdown. A decomposition exploiting the granularity of the model demonstrates that 40% of spatial variation in monopsony power is within Travel To Work Areas. Calculating employer concentration based on highly-granular 1km2 grids and probability of applying across grids based on pair-wise grid travel times shows how coarsely discretised labour markets such as Commuting Zones can cause sizeable mismeasurement in concentration measures. |
| Keywords: | monopsony |
| Date: | 2024–06–25 |
| URL: | https://d.repec.org/n?u=RePEc:cep:cepdps:dp2012&r= |
| By: | Goerke, Laszlo; Neugart, Michael |
| Abstract: | Monopsony power by firms and social preferences by consumers are well established. We analyze how wages and employment change in a monopsony if workers compare their income with that of a reference group. We show that the undistorted, competitive outcome may no longer constitute the benchmark for welfare comparisons and derive a condition that guarantees that the monopsony distortion is exactly balanced by the impact of social comparisons. We also demonstrate how wage restrictions and subsidies or taxes can be used to ensure this condition, both for a welfarist and a paternalistic welfare objective. |
| Date: | 2024–06–25 |
| URL: | https://d.repec.org/n?u=RePEc:dar:wpaper:146301&r= |
| By: | Hasan, Amena; Nahar, Kamrun; Akhter, Suraiya |
| Abstract: | This article explores the risks and impacts of cryptocurrency scams on investors, the market, and the global financial system. It emphasizes the need for government regulation, enforcement activities, and consumer education to address these scams. The article also discusses the relationship between the grey economy and the technosocial, highlighting the evolving nature of online and offline life and its implications for criminology. The study uses ethnographic research and participant observation to investigate the cultural context of cryptocurrency frauds. It examines various types of scams, including pump-and-dump schemes, advanced fee frauds, and rug pulls. The article concludes by emphasizing the importance of combating cryptocurrency frauds to protect investors, foster technological innovation, and maintain customer trust. |
| Keywords: | Cryptocurrency; scams; risk; blockchain; regulatory; technosocial |
| JEL: | D4 F6 G2 K22 |
| Date: | 2024–01–17 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121215&r= |
| By: | Fotios Kalantzis; Salma Khalid; Alexandra Solovyeva; Marcin Wolski |
| Abstract: | Using a novel cross-country dataset, which merges firm-level financials with information on firms’ participation in the European Unions’ Emissions Trading System (ETS), we investigate how firm performance is affected by tightening of environmental policies that put a price on pollution. We find that more stringent policies do not have a strong negative impact on the profitability of ETS-regulated or non-ETS firms. While firms report an increase in their input costs during periods of high carbon prices, their reported turnover is also higher. Among ETS-regulated firms which must purchase emission certificates under the EU ETS, tightening of climate policies in periods of high carbon prices results in increased investment, particularly in intangible assets. We establish robustness of our results using a quantile regression analysis, ensuring our key findings are not driven by distributional irregularities. Our findings provide support for the benefits of EU ETS on accelerating firms’ climate transition, while keeping firm-level financial costs at bay. |
| Keywords: | climate finance; climate change; decarbonization; firm-level analysis; Emissions Trading System (ETS) |
| Date: | 2024–06–28 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/135&r= |