Can Minimum Prices Assure the Quality of Professional Services?

This papers studies the effects on service quality and consumer surplus of a minimum price which is fixed by a bureaucratic non-monopolistic professional association. It shows that the price floor set by a Niskanen-type professional assocation will maximize consumer surplus only if consumers demand the highest possible average quality. If consumers demand services of lesser quality, the association's price floor will be too high if measured by consumer surplus. Moreover we show that a de-regulated market will always reproduce the favorable result of a uniformly high price in the case of top quality demand while delivering superior results in the case of a mixed demand for high and low quality services. The general picture that emerges from this discussion is that the current EU Commission's initiative to abolish fixed price schemes for professional services will not lead to a decrease in quality that would be undesirable from a standpoint of consumer protection. This holds even if we acknowledge the opponent's claim that there is a chance of deprivation of professional ethics due to price competition.Liberal professions; Price regulation; Quality; Professional association; Self-regulation; EU competition policy; Intrinsic motivation

Europäische Preisregulierungssysteme in der Wasserwirtschaft: Konzepte und Umsetzungsprobleme

Im Zuge der Deregulierung des Telekommunikations- und Energiesektors hat in Deutschland eine neue Art an Preisregulierung des Netzbereichs Einzug gehalten. Während das eigentliche Produkt beziehungsweise die eigentliche Serviceleistung in einem deregulierten Markt unter Wettbewerb angeboten wird, ist das Transportnetz als natürliches Monopol weiterhin preisreguliert. Bleibt nur die Frage, welches Preisregulierungssystem zur Anwendung gelangen soll. In der Wasserwirtschaft verhält es sich etwas anders. Die Möglichkeiten der vertikalen Desintegrierung in Produktanbieter und Netzbetreiber ist in technischer Hinsicht nur sehr schwer zu bewerkstelligen. Die Wasserwirtschaft stellt sich vielmehr als eine Landkarte regionaler Monopole dar, und es bleibt die Frage zu beantworten, wie der Wassertarif zu gestalten ist. Es lohnt sich daher, einen Blick auf die verschiedenen Preisregulierungssysteme im europäischen Ausland zu werfen. Dieser Vergleich erfolgt hier in einem theoriegeleiteten Rahmen, um gemeinsame oder unterscheidende Elemente herauszuarbeiten und die Möglichkeiten einer Übertragbarkeit auf den deutschen Wassersektor zu erörtern.In the course of the deregulation of the telecommunication and energy sector new price regulation mechanisms were introduced to cap the access price to the respective transportation grid. While products and services are supplied under competitive market conditions the transportation girds remains under price control due to its natural monopoly property. This leads to the issue what kind of proce regulation should be implemented. In the water sector conditions are a bit different due to the limited possibility to mix water of different suppliers in one grid. Hence, the water sector remains a topography of regional monopolists which leads to the question how the tariff systems should be regulated to prevent the monopolistic exploitation of customers. This contribution gives an overview what kind of regulation systems are conceivable and which of them have been adopted in European countries. It turns out, that almost all regulation mechanisms have been properly modified to be implementable. The question remains, whether the German water sector should change its current water price regulation system

A Modified Yardstick Competition Mechanism

This paper analyzes a modified yardstick competition mechanism (MYC), where the yardstick employed consists of a tariff basket and total costs. This mechanism has a significant information advantage: the regulator "only" needs to observe total costs and output of all firms. The modified yardstick competition mechanism can ensure a socially optimal outcome when allowing for spatial and second degree price discrimination, without increasing the informational requirements. We also introduce regulatory lags in the model. A systematic comparison between the results of traditional yardstick regulation and modified yardstick regulation is carried out. Finally, we discuss the applicability of the mechanism.Regulation, Yardstick competition, Mechanism design, Information asymmetry

Corporate Self-Regulation vs. Ex-Ante Regulation of Network Access: A Model of the German Gas Sector

This paper compares the outcomes of corporate self-regulation and traditional ex-ante regulation of network access to monopolistic bottlenecks. In the model of self-regulation, the domestic gas supplier and network owner and the monopsonistic gas customer fix quantities and the network access price, whereas the competitive fringe of foreign gas producers (third party) and the household customers are excluded from the agreement. The results are then compared with the outcome of traditional ex-ante regulation. We find that while industrial self-regulation leads to an exploitation of households, the effect on the foreign producers is unclear.Ex-ante regulation; Competition policy; Non-discriminatory network access; Bargaining

Increasing Block Tariffs in the Water Sector: A Semi-Welfarist Approach

We analyze the properties of progressive water tariffs that are often applied in the sector in the form of discretely increasing block tariffs (IBT). We are particularly interested in water tarification in a poverty context where a subsistence level of water has to be allocated to each household. Our approach is "semi-welfarist" to the extent that we analyze second-best pricing schemes that may be applied in practice due to "fairness" or other, non-welfarist considerations. In our theoretical model we compare a modified Coase-tariff and a progressively increasing block tariff with respect to water consumption, water expenses and utility levels. When we impose cost coverage on the water utility, there are clearly adverse effects on the "almost poor" by introducing a progressive tariff. This result is supported with a numerical application using real data from Bangladesh: progressive tariffs may fail to achieve "fair" cross-subsidization of low-income groups.water, tarification, prices, fairness, distribution, institutions

Can Minimum Prices Assure the Quality of Professional Services?

This papers studies the effects on service quality and consumer surplus of a minimum price which is fixed by a bureaucratic non-monopolistic professional association. It shows that the price floor set by a Niskanen-type professional assocation will maximize consumer surplus only if consumers demand the highest possible average quality. If consumers demand services of lesser quality, the association?s price floor will be too high if measured by consumer surplus. Moreover we show that a de-regulated market will always reproduce the favorable result of a uniformly high price in the case of top quality demand while delivering superior results in the case of a mixed demand for high and low quality services. The general picture that emerges from this discussion is that the current EU Commission?s initiative to abolish fixed price schemes for professional services will not lead to a decrease in quality that would be undesirable from a standpoint of consumer protection. This holds even if we acknowledge the opponent?s claim that there is a chance of deprivation of professional ethics due to price competition

Can minimum prices assure the quality of professional services?

This papers studies the effects on service quality and consumer surplus of a minimum price which is fixed by a bureaucratic non-monopolistic professional association. It shows that the price set by a Niskanen-type professional assocation will maximize consumer surplus only if consumers demand the highest possible average quality. If consumers demand services of lesser quality, the association?s price will be too high if measured by consumer surplus. Moreover we show that a de-regulated market will always reproduce the favourable result of a uniformly high price in the case of top quality demand while delivering superior results in the case of a mixed demand for high and low quality services

A Theory of Optimal Green Defaults

This paper develops an analytical framework for studying the Baumol–Oates efficiency of traditional single instrument abatement policies vis-à-vis green defaults in the face of price inertia and passive choice by subpopulations. In this special case of behavioural heterogeneity, command and control approaches can outperform price-based instruments while pure tax/subsidy schemes need to be adjusted in order to achieve politically desired levels of abatement. We also prove that choice-preserving nudges are superior to any single-instrument policy in this case. An average marginal abatement cost rule is developed to optimize the green defaults and traditional policies of standards and prices under different degrees of market rigidity.EC/H2020/653255/EU/PLAtform for Climate Adaptation and Risk reDuction/PLACAR

A theory of optimal green defaults

This paper develops an analytical framework for studying the Baumol-Oates efficiency of traditional single instrument abatementpolicies vis-à-vis green defaults in the face of price inertia and deliberate defaultingby subpopulations. In this special case ofbehavioural heterogeneity, command and control approaches can outperform price-based instruments while pure tax/subsidy schemes need tobe adjusted in order to achievepolitically desired levels of abatement. We also prove that choice-preserving nudges are superior to any single-instrument policy in this case. An average marginal abatement cost rule is developed to optimise the green defaults and traditional policies of standards and prices under different degrees of market rigidity