The telecommunications sector is undergoing major changes largely driven by the growing importance of data services and the proliferation of online activities. This shift has led to a variety of concerns among regulators, including concerns that internet service providers may discriminate against certain types of traffic, and that private incentives for innovation may be inadequate. This research explores these issues by estimating consumer demand for residential broadband using high-frequency data from subscribers facing a three-part tariff. The findings indicate that the three-part tariff eliminates low-value traffic; and that while the costs associated with investment in fibre-optic networks are likely to be recoverable in some markets, there is a large gap between social and private incentives to invest.
We focus on research that concerns antitrust policy, economic regulation, and market design. Questions of interest include the following:
• How should we regulate horizontal and/or vertical mergers? Is there a tradeoff between short run market power and longer run investment incentives?
• How should we respond to departures from the competitive ideal in markets; with imperfect information, that are highly concentrated, that are natural monopolies, or that generate externalities resulting from knowledge producing activities?
• How should centralized markets (like health insurance exchanges, kidney exchanges, and school choice mechanisms) be organized?
• What is the optimal design of auctions to procure services for the government, such as highway construction contracts, or to sell government assets, such as spectrum or mineral rights?
• How can policy makers detect and deter collusion?
• How should patent policy be designed?
Pharmaceutical innovation can be enormously valuable, leading to the development of medical treatments that save lives and improve patient quality of life. However, new medications that are powerful and effective are often accompanied by painful and uncomfortable side effects. This article summarizes a recent paper, “Why Medical Innovation is Valuable: Health, Human Capital, and the Labor Market”. The author develops a dynamic framework to assess the value of pharmaceutical innovation. The framework incorporates patient incentives for long-run health along with their preferences for treatments with fewer side effects. A key finding is that evaluating effective medical treatments without considering their side effects can be misleading.
Market-based mechanisms such as ‘cap-and-trade’ have become increasingly popular policy tools for reducing harmful emissions. But designing these schemes so that emissions are curbed efficiently requires understanding key elements of an industry’s structure, notably the degree of market power and the extent to which unregulated foreign producers compete with domestic firms. This research investigates these issues in the US cement industry, an emissions-intensive sector exposed to foreign competition. The findings suggest that the optimal regulatory policy in such industries may be to rebate compliance costs partially on the basis of output or to impose border tax adjustments.
Competitive devaluations are again becoming a popular macroeconomic policy. For example, a competitive devaluation was one of the three pillars of Abenomics, the economic policy of Shinzo Abe’s administration to fight secular stagnation in Japan. It was also discussed as a potential tool for debt-ridden southern European countries, had they been able to abandon the euro.
But while Japan reduced the value of the yen by 50 percent relative to the US dollar between 2012 and 2015, the impact on trade and employment was underwhelming. The Economist derided the policy as an “uncompetitive devaluation.”
Big-box retail stores arriving from foreign countries have transformed the way Mexican households shop for goods, sparking a “supermarket revolution”. Traditionally, consumers in developing countries have shopped at street markets and small, independent stores. However, consumers have switched to shopping at foreign retailers, who offer a larger variety of products at cheaper prices. Despite concerns that foreign retailers might adversely affect local employment and household incomes, our evidence shows that allowing them to operate their businesses in Mexico has generated substantial welfare gains for households across the income spectrum by lowering the cost of living, while having limited impacts on total employment, incomes, and local businesses closing.
The introduction of greater choice and competition in healthcare is an increasingly popular model for public service reform. This research shows that once restrictions on patients’ choice in England’s National Health Service were lifted, those requiring heart bypass surgery became more responsive to the quality of care available at different hospitals. This gave hospitals a greater incentive to improve quality and resulted in lower mortality rates. In short – the introduction of choice and competition saved lives.
Do European car manufacturers make exclusive dealing contracts with their retailers to keep out new, smaller suppliers (mainly from Asia) and in turn, hurt competition? The manufacturing industry could collectively maintain an exclusive dealing system through a block exemption regulation, which would require exclusive dealing through manufacturers’ retailers. Our research shows that if these exclusive contracts were banned, consumers would benefit from allowing dealerships to have more than one supplier and consequently, more brands of cars in stock. However, consumers would not benefit much through increased price competition, in contrast to what is commonly believed.
The introduction of new production processes can have dramatic effects on aggregate productivity within an industry. This research explores the impact of the major technological innovation of the minimill on the US steel industry, analyzing detailed producer-level data on prices and production over a 40-year period. The study illustrates how technology can drive reallocation: the market share of plants using minimills rose significantly, but the older technology of vertically integrated production was not entirely displaced. Instead, less productive vertically integrated plants were driven out of the industry and output was reallocated to more efficient producers.
When new technologies enter the market, older products are often removed from store shelves. This article asks whether such product elimination is socially efficient. It studies this question in the context of the American Home PC market between 2001 and 2004. Empirically, the paper documents consumer heterogeneity and then studies how the major innovation of the time—Intel’s Pentium M™ processor—contributed to social welfare.
Urban land development in China is occurring on a massive scale and corruption is prevalent in the real estate sector through side deals between buyers and city officials. A recent study by Cai, Henderson, and Zhang (2013, RAND Journal of Economics) provides indirect evidence of this corruption through the use of two different types of auctions. The authors argue that the practices of city officials overseeing land sales amount to losses in city revenue in the hundreds of billions of dollars.