Domestic Regulation and International Trade

We consider the effects of a one-sided price regulation of one of two complementary inputs. The provider of the regulated input is a domestic firm, while the provider of the other input is a foreign firm. This describes the market structure for several digital information and communication services, where the regulated input is access while the non-regulated complementary input is content. We show that one-sided regulation may have negative welfare effects compared to a free market economy, unless the regulator has a first-mover advantage. In the latter case, regulation is welfare enhancing regardless of whether the foreign input provider uses linear or non-linear wholesale prices.     

I. Allgemeine Wirstchaftslehre

Ohne Zusammenfassung     

Probabilities proportional to time-state prices

If probabilities and implicit prices of elementary state-contingent claims are proportional across states, any random income stream component is valued by discounting its expectation at the riskless rate. This lacking risk adjustment is explained by degeneracy in either market risk aversion or in randomness of aggregate consumption.     

Reductions in Real versus Tariff Barriers: The Impact on Industry Concentration

Economic integration has had ambiguous effects on industry concentration. The literature on the topic proposes various explanations for these empirical findings. This paper provides an additional theoretical argument. It shows that in a world of monopolistic competition, integration alone (modeled as a reduction of trade barriers) may exert opposing forces on industry concentration, depending on whether the barrier consists of real (frictional) or tariff costs. In particular, the Herfindahl index of industry concentration falls for a reduction in real costs, but rises for a reduction in tariff costs. The reason is that real barriers burn up resources, such that industry profitability is reduced, reducing entry, and resulting in fewer firms and a correspondingly higher concentration. Under a tariff barrier, the redistributed tariff revenue stabilizes industry profitability, resulting in more firms and a lower concentration.     

Demand-side Spillovers and Semi-collusion in the Mobile Communications Market

We analyze roaming policy in the market for mobile telecommunications. Firms undertake quality improving investments in network infrastructure in order to increase geographical coverage, capacity in a given area, or functionality. Prior to investments, roaming policy is determined. We show that under collusion at the investment stage, firms and a benevolent welfare maximizing regulators interests coincide, and no regulatory intervention is needed. When investments are undertaken non-cooperatively, firms and the regulators interests do not coincide. Contrary to what seems to be the regulators concern, firms would decide on a higher roaming quality than the regulator. The effects of allowing a virtual operator to enter are also examined. Furthermore, we discuss some implications for competition policy with regard to network infrastructure investment.     

Economies of scale in Norwegian electricity distribution: a quantile regression approach

In this article, we investigate scale economies in Norwegian electricity distribution companies using a quantile regression approach. To the best of our knowledge, this is the first attempt to apply this estimation technique when analysing scale economies. We estimate the cost elasticities of the two output components: network length and number of customers, to calculate returns to scale. Our results show large potential of scale economies, particularly for the smallest companies. We also find that returns to scale is increasing over time. These findings have important implications for policymakers when they are deciding the structure of the industry in the future.     

Access price structure and entrant build-or-buy incentives in mobile markets

Journal of Regulatory Economics - We consider a market structure with three mobile providers, two of which are vertically integrated with nationwide coverage. The third provider (an entrant)...     

Balanced Scorecards: A Relational Contract Approach

Reward systems based on balanced scorecards often connect pay to an index, that is, a weighted sum of multiple performance measures. We show that such an index contract may indeed be optimal if performance measures are nonverifiable so that the contracting parties must rely on self-enforcement. Under commonly invoked assumptions (including normally distributed measurements), we show that the weights in the index reflect a tradeoff between distortion and precision for the measures. The efficiency of the contract improves with higher precision of the index measure, because this strengthens incentives, and correlations between measurements may for this reason be beneficial. There is a caveat, however, because the index contract is not necessarily optimal for very precise measurements, although it is shown to be asymptotically optimal. We also consider hybrid measurements, and show that the principal may want to include verifiable performance measures in the relational index contract in order to improve incentives, and that this has noteworthy implications for the formal contract.