Regulatory authorities and energy market liberalization

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A Structural Econometric Model of Price Discrimination in the Mortgage Lending Industry

We propose a model of discrimination in the market for mortgages. The model explains accepted loan applications and determines loan sizes and interest rates simultaneously. A competitive, and a discriminating monopoly version of the model are proposed. Offered interest rates and loan sizes are a function of observable borrower characteristics. The competitive model rests on a marginal condition, re°ecting contract optimality, to which a zero-profit condition is added. In contrast, the discriminating monopoly maximizes profitsunder a borrower participation constraint, reflecting the availability of a rental market as an outside option. Each version of the model is a bivariate, nonlinear model, and is estimated by standard maximum likelihood methods. The data used for estimation is a sample of clients of a French network of mortgage lenders. We show the presence of "social discrimination" in the data, the loan conditions depending, not only on the borrower's wage and downpayment, but also on the borrower's occupational status. Abnormally high risk premia in the competitive version of the model suggest the presence of market power, justifying an attempt at estimating its monopolistic version. The discriminating monopoly model estimates show that the borrowers' price-elasticity of demand for housing varies with occupational status, and is inversely related with the lender's interest rate markups. This confirms that the lender exploits structural differences in the preferences to discriminate, as predicted by standard theories.mortgage loans, price discrimination, discriminating monopoly.

Look How Little I’m Advertising!

This paper studies the role of advertising and prices as signals of quality in a purely static setting, where repeat purchases are suppressed altogether, but where advertising affects demand directly. We first show, under standard regularity assumptions, that the high-quality firm will distort its price upwards and its level of advertising downwards compared to the complete-information case. We then show, under relatively mild additional conditions, that the high-quality firm will choose a level of advertising below that of the low-quality firm, even if the high-quality firm advertises most under complete information. Hence, empirically, a high price and a modest advertising budget may well signal high quality.quality; signaling; pricing; advertising

Incomplete Regulation, Competition and Entry in Increasing Returns to Scale Industries

The paper analyzes the effects of liberalization in increasing returns to scale industries. It studies the optimal regulation of an incumbent competing with an unregulated strategic competitor, when public funds are costly. The model shows a trade off between productive and allocative efficiency. Moreover, the welfare gains of liberalization, as compared with regulated monopoly, are a non monotonic function of the cost of public funds. Finally, in the case of severe cash constraint of the government, incomplete regulation may also dominate full regulation of duopoly.Incomplete Regulation, Asymmetric Information, Incentives, Cost of Public Funds.

Triple play as a separate market? Empirical findings and consequences to broadband market definition

Double and triple play bundled offers are common phenomena in many national communication markets. However the overall market context, technological background of provision, the level of facility based platform competition and strategic role of the bundled offers seems to be different in national markets. There is clear challenge to the current European regulatory approach to broadband markets, which is treated as a separate market on its own. If there was a separate market for the bundled product, the whole market analysis and remedy system had to be adapted to this market reality. Testing the (triple play) bundle the market hypothesis is the logical and necessary first step to address this issue. We designed and conducted an empirical study supported by the Hungarian Competition Authority in order to address these questions. A special, situation adaptive questionnaire design was applied in order to get the possibly best informed and adequate stated preference reactions to a 10% price change. We used the cri ical loss test for market definition, testing whether there is a separate market for triple play bundles. Results indicates that the market definition question whether bundle has to or could be considered as a separate relevant market can be answered using well designed survey techniques. Many clues support the hypothesis that the triple play bundle in 2010 indeed was a separate relevant market. --triple play,double play,multi-play,bundle,market definition,SSNIP test,consumer survey,stated preference approach,critical loss

Information in Mechanism Design

We survey the recent literature on the role of information for mechanism design. We specifically consider the role of endogeneity of and robustness to private information in mechanism design. We view information acquisition of and robustness to private information as two distinct but related aspects of information management important in many design settings. We review the existing literature and point out directions for additional future work.Mechanism Design, Information Acquisition, Ex Post Equilibrium, Robust Mechanism Design, Interdependent Values, Information Management

Information in Mechanism Design

We survey the recent literature on the role of information in mechanism design. First, we discuss an emerging literature on the role of endogenous payoff and strategic information for the design and the efficiency of the mechanism. We specifically consider information management in the form of acquisition of new information or disclosure of existing information. Second, we argue that in the presence of endogenous information, the robustness of the mechanism to the type space and higher order beliefs becomes a natural desideratum. We discuss recent approaches to robust mechanism design and robust implementation.Mechanism Design, Information Acquisition, Ex Post Equilibrium, Robust Mechanism Design, Interdependent Values, Information Management