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on Regulation |
| By: | Pittman, Russell |
| Abstract: | How to protect “captive shippers” from monopolistic abuses by a railway? In an “open access” system, it’s straightforward: provide infrastructure access to a competing train operating company. In a system without open access – as in, for example, the United States, Canada, Mexico, and Brazil – it’s not so straightforward. For freight shippers lacking economic intramodal or intramodal shipping alternatives, regulators and policymakers have focused on regulatory alternatives in two broad categories: 1) direct regulation of rates, and 2) imposed, regulated competition from a second railway (for example, interswitching or trackage rights). We argue that, despite disadvantages familiar to every Economics 101 student, direct regulation of rates has proven to be the superior alternative, and we discuss alternative mechanisms currently under debate. |
| Keywords: | freight railways, regulation, captive shippers, Canada, Mexico |
| JEL: | L51 L92 L98 |
| Date: | 2024–10–04 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122284 |
| By: | Martin Peitz; Susumu Sato |
| Abstract: | We propose a tractable model of asymmetric platform oligopoly with logit demand in which users from two distinct groups are subject to within-group and cross-group network effects and decide which platform to join. We characterize the equilibrium when platforms manage user access by setting participation fees for each user group. We explore the effects of platform entry, a change of incumbent platforms’ quality under free entry, and the degree of compatibility. We show how the analysis can be extended to partial user participation. |
| Keywords: | oligopoly theory, aggregative games, network effects, two-sided markets, two-sided single-homing, entry |
| JEL: | L13 L41 D43 |
| Date: | 2023–05 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_428v3 |
| By: | Danhou Li (Department of Economics, National University of Singapore, Singapore); Ce Matthew Shi (Department of Economics, Chinese University of Hong Kong, Hong Kong SAR) |
| Abstract: | This paper examines theoretically and empirically the welfare effects of differential pricing for Internet traffic in a network market. We begin by analyzing a model of differential pricing by a monopolist Internet service provider (ISP), wherein charges are levied on content providers for traffic flow and on consumers for Internet access. Content providers differ in terms of their demand for Internet traffic and their value to consumers (“network effects†). Under linear demands, we show that compared to uniform pricing, differential pricing based solely on network effects is welfare-enhancing, while purely elasticity-based differential pricing reduces content provider surplus and social welfare. The welfare effects become ambiguous when both network effects and demand elasticities differ across content providers. Using a unique dataset on monthly transactions between a large ISP and major content providers in China (where ISPs legally own Internet traffic services in the form of CDN), we estimate the model and quantify the welfare effects using the demand and cost estimates. Our counterfactual analysis shows that consumer surplus and content provider surplus increase under differential pricing; however, a disproportionate share of the welfare gain is captured by several big content providers, while smaller content providers tend to become worse off. |
| Keywords: | differential pricing; Internet traffic; network industry; welfare |
| JEL: | L12 L86 L96 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:net:wpaper:2409 |
| By: | Stephen F. Hamilton (Department of Economics, California Polytechnic State University); Benjamin Ouvrard (Grenoble Applied Economics Laboratory) |
| Abstract: | Fair pricing standards are used in various industries, encompassing fair trade, labor practices, and state-regulated pricing. We demonstrate that fair pricing can serve as a vertical restraint by a dominant manufacturer on its retailers to fully coordinating prices in a multi-product distribution channel with fair priced and conventional goods. We identify buyer market power by the manufacturer in the upstream market as a novel role for a manufacturer to impose a vertical restraint on retailers in the downstream market, and characterize the vertical restraint that maximizes collective rents in terms of demand-side and supply-side diversion ratios. |
| Keywords: | Fair pricing; vertical restraint; buyer market power |
| JEL: | L13 L14 L42 D43 |
| Date: | 2023 |
| URL: | https://d.repec.org/n?u=RePEc:cpl:wpaper:2402 |
| By: | Ibrahim Abada; Andreas Ehrenmann; Yves Smeers |
| Keywords: | Marginal pricing, power markets, duality, mathematical programming |
| JEL: | C61 D4 Q41 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:enp:wpaper:eprg2415 |
| By: | José Ignacio Heresi (Facultad de Economía y Negocios, Universidad Alberto Hurtado, Santiago Chile.); Yassine Lefouili (Toulouse School of Economics, University of Toulouse Capitole, 1, Esplanade de l'Université, 31080 Toulouse, Cedex 06, France.) |
| Abstract: | We study how an app store's decision about its ad-valorem fee affects the business models chosen by app developers. We derive optimal choices for the app store and their effects on industry profits, consumers, and total welfare. Surprisingly, the platform's optimal ad-valorem fee may be lower than the socially optimal one. Our findings provide insights into recent antitrust disputes and regulatory debates. |
| Keywords: | business model, ad-valorem fee, platform, app store. |
| JEL: | D21 L21 L40 L50 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:net:wpaper:2404 |
| By: | Daron Acemoglu; Daniel Huttenlocher; Asuman Ozdaglar; James Siderius |
| Abstract: | We present a model where social media platforms offer plans that intermix entertaining content with digital advertising (“ads”). Users derive utility from entertainment and learn about their valuation for a product from ads. While some users are fully rational, others naïvely perceive digital ads as more informative than they actually are. We characterize the profit-maximizing business model of the platform and show that welfare is lower when the platform monetizes through advertising instead of subscription both for naïfs (because they are targeted by intense digital advertising, which makes them over-optimistic about product quality and over-purchase the product) and for sophisticates (because the inflated demand from naïfs increases the firm’s price). This negative welfare effect is intensified when the platform can offer mixed business models that separate the naïve and sophisticated users into different plans. Our results are robust to firm-level and platform-level competition, because digital ads soften competition between both firms and platforms. We also show how digital ad taxes can improve welfare. |
| JEL: | D43 D83 L13 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33017 |
| By: | Marco Bornstein; Zora Che; Suhas Julapalli; Abdirisak Mohamed; Amrit Singh Bedi; Furong Huang |
| Abstract: | In an era of "moving fast and breaking things", regulators have moved slowly to pick up the safety, bias, and legal pieces left in the wake of broken Artificial Intelligence (AI) deployment. Since AI models, such as large language models, are able to push misinformation and stoke division within our society, it is imperative for regulators to employ a framework that mitigates these dangers and ensures user safety. While there is much-warranted discussion about how to address the safety, bias, and legal woes of state-of-the-art AI models, the number of rigorous and realistic mathematical frameworks to regulate AI safety is lacking. We take on this challenge, proposing an auction-based regulatory mechanism that provably incentivizes model-building agents (i) to deploy safer models and (ii) to participate in the regulation process. We provably guarantee, via derived Nash Equilibria, that each participating agent's best strategy is to submit a model safer than a prescribed minimum-safety threshold. Empirical results show that our regulatory auction boosts safety and participation rates by 20% and 15% respectively, outperforming simple regulatory frameworks that merely enforce minimum safety standards. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.01871 |
| By: | Gregor, Leonard; Haucap, Justus |
| JEL: | L11 L13 L22 L40 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:vfsc24:302420 |
| By: | Wichman, Casey (Resources for the Future) |
| Abstract: | Municipal water utilities choose rates to recover costs, encourage conservation, and reduce burdens on low-income customers, which may deviate from optimal two-part tariffs. Theory suggests that prices should equal marginal cost with fixed costs recovered via fixed fees or alternative tax revenues. Using rate structure and municipal finance data for more than 700 utilities, I show that prices are discounted severely for low levels of consumption within nonlinear rate structures, leading to suboptimal usage and budget deficits, particularly in poorer and smaller communities. Marginal-cost pricing corrects allocative inefficiencies, and equity and cost-recovery goals can be achieved through more progressive approaches to fixed costs, which are both highly regressive and a large share of total costs.Key Words: water pricing; utility management; natural monopolies; two-part tariffs; nonlinear pricing; affordability; municipal finance.JEL codes: D12, H23, L95, Q25 |
| Date: | 2024–10–15 |
| URL: | https://d.repec.org/n?u=RePEc:rff:dpaper:dp-24-18 |
| By: | Carolina Celis (Inter-American Development Bank); Arturo Galindo (Inter-American Development Bank); Liliana Rojas-Suarez (Center for Global Development) |
| Abstract: | This paper presents findings from a comprehensive survey of 18 central banks and banking supervisor authorities in Latin America and the Caribbean, including major economies like Argentina, Brazil, Chile, Colombia, and Mexico. The survey aimed to assess the adoption of the Basel III standards across the region and revealed significant diversity in regulatory capital frameworks. Notably, while 75 percent of respondent countries have adopted Basel III for some financial intermediaries, 44 percent still maintain hybrid systems allowing for Basel I or II standards. These results highlight the region's varied approach to financial regulation, pointing to both progress in adopting international standards and the persistence of legacy regulatory regimes. The detailed findings and constructed indexes provide valuable insights into the state of financial regulation in the region, reflecting a landscape of both convergence and divergence in banking supervision practices. |
| Keywords: | Financial Regulation, Banking Supervision, Basel III Adoption |
| JEL: | E58 G21 G28 |
| Date: | 2024–10–10 |
| URL: | https://d.repec.org/n?u=RePEc:cgd:wpaper:705 |
| By: | Alessandro Dovis; Rishabh Kirpalani; Guillaume M. Sublet |
| Abstract: | How should society allocate policy-making between the legislative and the executive branches of government? We analyze a model in which biased and polarized policymakers set policy in response to shocks. We show that policy issues for which the policy-maker bias is small relative to the degree of polarization should be delegated to the legislature, while policy issues where the bias is large should be delegated to the executive. Moreover, when executive delegation is preferred, it is optimal to leave little discretion and impose a narrow mandate. This finding contrasts with conventional wisdom that executive delegation allows for greater flexibility. The main difference between the two institutional settings is the ability to restrict ex post bargaining under executive delegation. Thus, when the bias is large, executive delegation is preferred because it can effectively constrain policymakers' choices. In contrast, when the bias is small, the ability to bargain ex post allows for flexible responses to severe shocks while limiting political risk. We also study the credibility of these institutions and show that while delegating to the legislature is typically credible, executive delegation is typically not when the bias is exogenous but can be when the bias arises from time inconsistency problems. |
| JEL: | E0 E60 P0 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33034 |
| By: | Cristobal Cheyre (Cornell University); Li Jiang (George Washington University); Florian Schaub (University of Michigan); Zijun Ding (Carnegie Mellon University); Cristiana Firullo (Cornell University); Yucheng Li (Carnegie Mellon University); Alessandro Acquisti (Carnegie Mellon University) |
| Abstract: | We present the design of a field experiment on the impact of tracking, targeting, ad-blocking, and anti-tracking technologies on consumers’ behavior and economic outcomes. The online data industry has often heralded the benefits of online tracking and targeting, particularly in the context of online advertising. Its claims are juxtaposed by the privacy concerns associated with the vast number of ad-tech companies tracking and analyzing consumers’ online behavior – often without consumers’ awareness. We use a field experiment to analyze the impact of online tracking and targeting as well as ad-blocking and anti-tracking technologies, focusing on consumers’ online behaviors (such as browsing and shopping), and their ultimate purchasing outcomes (as measured by amounts of money spent online, product prices paid, time spent on product searching, and purchase satisfaction). In this draft, we describe the rationale and motivations behind the study; the experimental design and the instrumentation infrastructure developed for the experiments; and the plans for data collection. |
| Keywords: | economics of digitization, economics of privacy, online experiments, online advertising, behavioral advertising |
| JEL: | C93 D01 M37 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:net:wpaper:2410 |
| By: | Shunto J. Kobayashi (Questrom School of Business, Boston University, Boston, Massachusetts 02215); Garrett A. Johnson (Questrom School of Business, Boston University, Boston, Massachusetts 02215); Zhengrong Gu (Questrom School of Business, Boston University, Boston, Massachusetts 02215) |
| Abstract: | An advertiser can use retargeting to target its site visitors with ads offsite, often to push users to complete a purchase. Retargeting is controversial because it raises both user privacy concerns and questions about its effectiveness for advertisers. In this study, we partner with an advertiser intermediary to measure retargeting effectiveness across more than 2, 000 advertisers, leveraging an industry-wide experiment to evaluate both traditional and privacy-enhanced retargeting approaches. Google's Privacy Sandbox allows advertisers to retarget users without tracking cross-site browsing by moving ad selling onto the user's device. We provide broad-based evidence that retargeting lifts advertisers' baseline conversions by 4.6%. While removing third-party cookies significantly reduces ad clicks and click-through conversions, implementing Privacy Sandbox recovers 46.3% of lost ad clicks, and 43.5% of lost click-through conversions. Importantly, when adjusting for ad expenditure, the performance gap between privacy-enhanced and traditional retargeting narrows: Sandbox's click per dollar and click-through conversion per dollar achieve 86.4% and 81.8% of traditional counterparts, respectively. We provide additional evidence exploring time heterogeneity and advertiser heterogeneity in treatment effects, suggesting that the limited overall performance of Privacy Sandbox may be due to the lack of supply-side adoption of Privacy Sandbox. |
| Keywords: | privacy, online advertising, privacy-enhancing technologies, ad effectiveness |
| JEL: | M31 M37 D83 L86 K24 C93 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:net:wpaper:2406 |