Technology investment and alternative regulatory regimes with demand uncertainty

A vertically integrated incumbent and an OLO (Other Licensed Operator) compete in the market for broadband access. The incumbent has the option to invest in building a Next Generation Network that covers all urban areas with similar demand structures. The investment return in terms of demand increase is uncertain. We compare the impact of different access regulation regimes – full regulation, partial regulation (only the copper network is regulated), risk sharing – on investment incentives and social welfare. We find that, when the alternative for the OLO is using the copper network rather than leaving the market entirely, exclusion of the OLO does not necessarily happen in equilibrium even when the incumbent is better in offering value-added services. Risk sharing emerges as the most preferable regime both from a consumer and a social welfare perspective for a large range of parameters.     

Asymmetric access price regulation in telecommunications markets

In liberalized telecommunications markets, the incumbent typically enjoys several advantages over any entrant. Regulation in such asymmetric markets stimulates competition in the short and the long term if retail prices are low and the entrant's profits are high so that entry is encouraged. I show that asymmetric access price regulation with a cost-based access price for the incumbent and an access markup for the entrant is more successful than cost-based access price regulation applied to incumbent and entrant. This is a robust prediction with respect to the pricing strategies considered. Such asymmetric access price regulation is in accordance with European legislation.     

Forecasting VoWLAN technology for the Taiwan mobile telecommunication industry

Disruptive innovation is always a great challenge to the management of incumbent firms, especially in fast-changing industries. In this study, scenarios were developed to facilitate strategic decision-making by incumbent mobile telecommunications firms that confront the threats of disruptive technology of voice over wireless local area network (VoWLAN). Combining various possible outcomes of uncertain conditions and strategic alternatives available to the incumbent firms, six scenarios were developed: incremental evolution, disruptive evolution, cost deterrence, fierce competition, market pre-emption and market convergence. The results show that a passive ‘do-nothing’ strategy by incumbent firms leads to failure if the disruptive technology is inevitable. However, firms can slow the pace of disruptive technology by applying a price-cut strategy and enjoy several years of profits in the process. Industrial insights and strategic implications obtained from all the scenarios are discussed.     

Regulation and Access Pricing: Comparison of Regulated Regimes

The statutory duties of regulators of British utilities include both the encouragement of competition and protection of consumers (through price caps). Competition depends on the terms on which new entrants can gain access to the monopolist's network. Where the incumbent in the retail market also owns the network, the regulator may determine prices in the capped and access markets separately or may make the price cap explicitly dependent on entry in the uncapped market. Contrary to the received wisdom that access charges should be separately regulated we show that higher welfare can be obtained in some circumstances by allowing the incumbent to determine access charges. This is achieved by permitting the incumbent to choose from a menu of retail prices which the regulator makes conditional on the extent of entry in the retail market.     

Competition enhancing regulation and diffusion of innovation: the case of broadband networks

Regulating former telecommunications monopolies has often been legally and technically complex. Among other options, incumbent operators were mandated to share, sell or split their infrastructure thus encouraging market entry. Given the importance of broadband technologies, competitive access has become a policy priority. We use data from 167 broadband markets over a period of 11 years. Firm and intra-platform competition on the incumbent’s legacy network (Digital Subscriber Line) accelerate adoption of broadband, whereas competition over different access technologies does not. The duration of the different regulatory effects shows that simpler network changes have a long-lasting yet delayed effect compared to technically demanding ones.     

Foreign direct investment and the correlation between cost and revenue

This paper studies irreversible investment in the presence of uncertain revenue and uncertain cost of production. Using methodology of real options, we find the threshold markup of price over cost that triggers investment. When the processes for revenue and cost are negatively correlated, the standard result that uncertainty delays investment always holds. However, when these two processes are positively correlated, greater uncertainty of revenue or cost might accelerate investment. As less correlated cost and revenue, vertical FDI is less desirable than producing at home, but horizontal FDI that brings production to the output market is an advantage.     

Strategic bypass deterrence

In liberalized network industries, competitors can either compete for service using the existing infrastructure (access) or deploy their own capacity (bypass). We revisit this make-or-buy problem making two contributions to the literature. First we analyze both the profit maximizing behavior of an incumbent and the welfare maximizing behavior when the entrant chooses between access and bypass. Second, we extend the baseline model studied in the literature by allowing for fixed costs of network installation. By analogy to the literature on strategic entry deterrence, we distinguish three régimes of blockaded bypass, deterred bypass and accommodated bypass depending on the entrant’s unit cost. We show that the make-or-buy decision of the entrant is not necessarily technologically efficient: when bypass is chosen, it is always the cheapest option but access may be chosen when it is not cost effective.     

科技政策组合的技术创新协同效应研究 ——供给侧—需求侧视角

利用2013-2016年中关村园区企业数据,将创新划分为创新倾向、技术绩效和经济绩效,以政策供给侧的政府补贴、税收优惠及需求侧的政府采购为研究对象,基于倾向得分匹配方法分析供需两侧科技政策组合的技术创新协同效应。结果表明：政策支持对技术创新存在激励效应,供给侧政策对创新倾向的激励效应最强,而需求侧政策对创新绩效的激励效应更显著;不同的科技政策组合形式均对技术创新具有激励作用,并且科技政策组合对技术创新存在协同效应。     

Welfare effects of unbundling under different regulatory regimes in natural gas markets

In this paper, we develop a theoretical model that enriches the literature on the pros and cons of ownership unbundling vis-à-vis lighter unbundling frameworks in the natural gas markets. For each regulatory framework, we compute equilibrium outcomes when an incumbent firm and a new entrant compete à la Cournot in the final gas market. We find that the entrant’s contracting conditions in the upstream market and the transmission tariff are key determinants of the market structure in the downstream gas market (both with ownership and with legal unbundling). We also study how the regulator must optimally set transmission tariffs in each of the two unbundling regimes. We conclude that welfare maximizing tariffs often require free access to the transmission network (in both regulatoy regimes). However, when the regulator aims at promoting the break-even of the regulated transmission system operator, the first-best tariff is unfeasible in both regimes. Hence, we study a more realistic set-up, in which the regulator’s action is constrained by the break-even of the regulated firm (the transmission system operator). In this set-up, we find that, for a given transmission tariff, final prices in the downstream market are always higher with ownership unbundling than with legal unbundling.     

COMPETITION,REGULATION AND WELFARE IN THE PRESENCE OF NETWORK EXTERNALITIES*

In this paper we consider a simple model of an industry with network externalities, where a benefit to each consumer from network services depends on the size of the network. We first consider a single network and cover the cases with and without fixed cost of entry. We then turn to the two‐network industry, where the incumbent network and a new entrant network compete for the market and may differ both in their marginal costs and demand structures. In addition, we identify several situations where public policy may play a crucial role in sustaining socially advantageous network service provision.     

Access pricing and investment: a real options approach

This paper examines a three-period model of an investment decision in a network industry characterized by demand uncertainty, economies of scale and sunk costs. In the absence of regulation we identify the market conditions under which a monopolist decides to invest early as well as the overall welfare generated by this decision. In a regulated environment, we consider a vertically integrated network provider that is required to provide access to downstream competitors and compare two distinct access pricing methodologies: the Efficient Component Pricing Rule (ECPR) and the Option to Delay Pricing Rule (ODPR). We identify the welfare-maximizing access prices using the unregulated market output as a benchmark and show that optimal access regulation depends on market conditions (that is, the nature of demand) with two possible outcomes: (i) access prices that provide a positive payoff to the incumbent, that is, provide a positive compensation to account for the option to delay; and (ii) access prices that yield a zero payoff to the incumbent. Moreover, unlike the earlier literature that argues in favor of an ECPR-type methodology to account for the interaction between irreversibility and demand uncertainty, we find that, except under very specific conditions, an access price that accounts for the option to delay value is welfare-superior to the ECPR.      

Price-Matching Guarantees and Entry Deterrence under Incomplete Information

This paper studies price-matching guarantees in a market where entrant does not have perfect information about incumbent’s cost. The low-cost incumbent can adopt price-matching guarantees as a signal to distinguish itself from the high-cost type and thus effectively deter entry. On the other hand, the high-cost incumbent can successfully fool the potential entrant under certain conditions. Compared with the equilibriums in situations where the option of offering a price guarantee is not available, the use of this instrument either makes it easier for the low-cost incumbent to signal its cost, or expands the range of parameters over which the high-cost incumbent is able to deter entry successfully.     

电网企业节能减排效果分析模型及应用——基于改进TOPSIS法

全球气候变化及能源危机是人类社会发展所面临的重要挑战,如何保障能源供给,促进经济、社会和环境的协调发展成为亟待解决的问题.电网企业作为能源消耗和污染物排放的主要产业,其节能减排效果将对我国节能减排措施的实施起着举足轻重的作用.近年来,智能电网的发展为清洁能源的接入并网与低碳用电技术的运用提供了重要支撑,它不仅能够实现发电侧的清洁生产,而且能够通过需求侧管理实现用户侧的节能减排.本文将从发电侧、供电侧及用电侧三个角度分析构建电网企业节能减排贡献效果的评价指标体系,利用熵权法修正指标权重,然后利用TOPSIS法构建了电网企业节能减排贡献效果评价模型,算例结果表明改进的TOPSIS法适用于从不同角度评价电网企业节能减排的贡献效果.     

Drivers of different types of eco-innovation in European SMEs

In this paper we explore the drivers of different types of eco-innovation in European SMEs. Drawing upon a database of 27 European countries, empirical evidence is found for the different roles of supply-side, demand-side and regulatory factors in encouraging the adoption of different types of eco-innovation. Our empirical strategy consists of the estimation of a trivariate probit model. Our results show that those entrepreneurs who give importance to collaboration with research institutes, agencies and universities, and to the increase of market demand for green products are more active in all types of eco-innovations. Supply-side factors seem to be a more important driver for environmental processes and organizational innovations than for environmental product innovations. The results also show that market share only has a significant positive influence on eco-product and eco-organizational innovations, while cost-savings are solely significant for eco-process innovations. Finally, prioritizing existing regulations shapes eco-product and eco-organizational innovations while expected regulations and access to subsidies and fiscal incentives do not have any significant effect on the decision to eco-innovate in Europe at the firm-level.     

The NOME law: implications for the French electricity market

In December 2010, France approved the law “Nouvelle Organisation du Marché de l’Electricité” (or NOME law) to promote competition in the retail electricity market. In practice, the law allows retailers to buy nuclear production from the incumbent, at a regulated access price. This mechanism works up to a ceiling of 100 terawatt hours, which represents one quarter of the incumbent’s production from nuclear plants. Each retailer is assigned a share of that amount proportionally to its portfolio of clients. We contribute to the debate raised by the NOME law regarding the evolution of retail market prices. We show that a price decrease results if the ceiling is sufficiently high compared to the market share of the retailers competing with the incumbent. This pro-competitive effect is stronger when the incumbent’s rivals take into account the impact of their market strategy on the redistribution rule. Finally, we find that, if the regulated price of the NOME electricity is set above the nuclear cost, the incumbent realizes a gain that may result in strategic withholding, weakening the pro-competitive effects of the law.     

Quality upgrades and bypass under mandatory access

We analyze the interaction between the incumbent’s incentive to upgrade the quality of its network and the entrant’s incentive to build a bypass network when the regulator sets a two-part access tariff to the incumbent’s network. Under this context, the entrant’s investment in a bypass network is delayed with a higher incumbent’s investment in quality. Moreover, the possibility of investment in a bypass network by the entrant has a positive effect on the incumbent’s incentive to upgrade quality. We show that a regulator cannot achieve the first best with a constant access tariff. If he wants to design an alternative welfare improving access tariff, he should set an access fee increasing (decreasing) in quality if the business-stealing effect of quality upgrades is weak (strong). The analysis suggests that if the entrant’s investment costs are declining or its market share is increasing over time, it is not always optimal to require the incumbent to lease facilities at cost-based prices.     

EFFECTIVE DEMAND, OUTWARD INVESTMENT AND THE (THEORY OF THE) TRANSNATIONAL CORPORATION: AN EMPRICAL INVESTIGATION

That demand-side deficiencies can provide an inducement for outward investment by transnational corporations has never acquired much currency, despite its long history and the fact that existing theories ofter have implications supportive of it. Arguably a reason for this is that the idea has never been tested empirically. In this paper we provide the first such empirical test. First we critically survey and attempt to synthesize the mainstream microeconomic or supply-side theories of the TNC. Then we examine the case for a demand-side perspective, link this to the supply-side and discuss some existing indirect evidence in support of this perspective. Finally we provide a direct econometric test of the demand-side perspective, which provides clear support for it.     

Institutional Demand-Side Discrimination Against Women and the Human Capital Model

Human capital theorists claim that the gender wage gap is due in large part to supply-side factors. They base this claim on empirical evidence. This paper challenges the interpretation of that empirical evidence. It argues that that interpretation is based on an assumption of a simplified production system that rules out any consideration of institutionally-based demand-side discrimination. It argues that insiders have an incentive to choose production techniques that benefit themselves, and that their choices will bias measures of human capital in their favor. The paper then considers a specific case study - the undergraduate U.S. academic market - where such institutionally-based demand-side discrimination exists, and offers an institutional change which could work to offset it.     

环境规制如何影响了制造企业的成本加成率

本文以“十一五”以来环境规制政策的实质性推进为“准自然实验”，基于2000—2011年《工业企业污染排放数据库》和《中国工业企业数据库》合并得到的微观面板数据，运用双重差分倾向得分匹配方法(PSM-DID)，考察环境规制政策实施对制造企业成本加成率的影响效果及其微观作用机制。研究发现，环境规制政策显著提升了制造企业的成本加成率；环境规制对成本加成率的促进作用主要通过创新补偿机制实现，市场结构变动机制对成本加成率的影响不明显，遵循成本机制对成本加成率的影响为负；环境规制政策对高污染行业和中部地区制造企业成本加成率的促进效果更强。     

Trade liberalization and markups: Micro evidence from China

This paper presents evidence from highly disaggregated Chinese firm-product data that, given productivity, input tariff reductions induce an incumbent importer/exporter to increase product markups. We further investigate empirically the mechanisms underlying this trade liberalization effect, and find that input tariff reductions decrease marginal costs, and their effects on markup adjustments are more profound among firms with higher import dependence. Moreover, we exploit unique features of Chinese data by comparing results for two trade regimes: ordinary trade (wherein firms pay import tariffs to import) and processing trade (wherein firms are not subject to import tariffs). While the aforementioned trade liberalization effects and mechanisms only apply to ordinary trade, processing trade samples are used in a placebo test. The paper also shows that more productive firms charge higher markups for products. All these findings are robust to alternative markup measures including one estimate using physical-quantity output data, different production function specifications, a subsample consisting only of pure exporters, and estimations based on our theoretical derivations.