Loss In Consumer Surplus Research Articles

Naked exclusion with heterogeneous buyers

We investigate the effects of buyer heterogeneity in a market where an incumbent firm deters entry when it signs enough exclusionary contracts with buyers. With heterogeneous buyers, several well-known results in exclusionary contracting with homogenous buyers are overturned and novel ones emerge. First, inefficient equilibria exist in which exclusionary contracts are signed but entry still occurs, and the loss of consumer surplus falls on small buyers. Second, sequential contracting may be more pro-competitive than simultaneous contracting in the sense that entry occurs under sequential but not simultaneous contracting. When this happens, sequential contracting Pareto dominates simultaneous contracting. We extend our analysis to consider downstream competition and breach of contract.

The Causal Linkages between Market Power and Cost Efficiency: Testing Quiet Life Hypothesis for the Banking Industry

This study aims to test the quiet life hypothesis considering the impact of market power on cost efficiency in Pakistani banks where managers of the banking industry slacken their efforts to enjoy a ‘quiet life’ due to market power and are not focused on the cost efficiency of their banks. Thus, banks with high market power are relatively less focused on the efficient allocation of resources, resulting in a loss of consumer surplus and efficiency. We take panel data for a sample of 25 commercial banks throughout 2006-2019. Our findings suggest Uni-directional causality running from cost efficiency towards market power in the case of Pakistan. In addition, to control for endogeneity, we adopt a dynamic two-step system GMM approach to model the relationship between market power and cost efficiency. Our findings suggest significantly negative effects of cost efficiency over market power, disproving the presence of quiet life in the case of Pakistan. This study provides substantial theoretical contributions in the form of the Quiet life hypothesis and welfare performance of banks. However, to the best of our knowledge, the causal linkages and the effects of market power on cost efficiency or vice versa are not documented for the banking industry of Pakistan.

COVID-19 and visitation to Central Park, New York City.

Central Park is an iconic feature of New York City, which was the first and one of the hardest hit cities in the United States by the Coronavirus. State-level stay-at-home order, raising COVID-19 cases, as well as the public's personal concerns regarding exposure to the virus, led to a significant reduction of Central Park visitation. We utilized extensive cellphone tracking data to conduct one of the pioneering empirical studies assessing the economic impact of COVID-19 on urban parks. We integrated the difference-in-difference (DID) design with the recreation-demand model. The DID design aids in identifying the causal impacts, controlling for unobservable factors that might confound the treatment effects of interest. Concurrently, the recreational demand model examines the driving factors of visitation changes and enables us to estimate the welfare changes experienced by New York City's residents. Our findings shine a light on the substantial, yet often overlooked, welfare loss triggered by the pandemic. The analysis indicates that the pandemic resulted in a 94% reduction in visitation, corresponding to an annual consumer surplus loss of $450 million. We noted a rebound in visitation following the initial outbreak, influenced by shifts in government policy, weather conditions, holiday periods, and personal characteristics.

On-Demand Autonomous Vehicles in Berlin: A Cost–Benefit Analysis

The technological development of autonomous vehicles (AVs) challenges their economic relevancy. Are AVs worth it? We adapted the cost–benefit analysis framework to the case of AV services. The appraisal methodology was applied to the introduction of an on-demand AV service in Berlin, simulated through MATSim, an agent-based model. The introduction of AVs in a dense urban environment would generate more pressure on the road network. This would cause private car users to experience longer travel times, resulting in a consumer surplus loss that would not offset the new AV users’ benefits. In one configuration, a stop-based routing service appeared to generate fewer externalities (e.g., congestion, emissions, accidents) and would be cheaper to operate than door-to-door routing. Another configuration assumed that private cars were banned. In that case, the consumer surplus significantly decreased, AV services were not able to absorb the entire demand, and the shares of other modes increased. However, the externalities were significantly reduced. Finally, in an urban environment where on-demand AVs were added to the available modes, the social impact was negative for all economic agents, with heterogeneity apparent on the impacts of the different externalities. This would benefit some travelers but would also involve additional congestion. In that case, a stop-based routing seemed preferable (but still negative) to a door-to-door one. Further works discussing the introduction of AVs into an urban environment should focus on line-based options such as automated bus services.

Pharmaceuticals, incremental innovation and market exclusivity

This paper assesses the welfare gains from incremental innovation in pharmaceuticals. Such innovation can yield consumer gains through improved quality, but the additional market exclusivity granted to innovators may also delay generic entry, a practice referred to as “ever-greening”, and reduce consumer surplus. Quantifying this trade-off is vital in determining the optimal patent policy and regulatory treatment of incremental innovation. To shed light on this problem, I focus on incremental innovations in selective serotonin reuptake inhibitor (SSRI) anti-depressant drugs. Based on individual-level prescription data, I conduct a structural estimation and found that the consumer surplus losses due to market exclusivity extensions far exceed the consumer surplus benefits from incremental innovation. Without considering innovation costs, the benefits to innovators from incremental innovations ranged from $660 million to $2.16 billion even in the absence of market exclusivity. Evidence indicates that the market exclusivity granted for incremental innovations in SSRIs resulted in a loss of social welfare of between $4.78 billion and $11.68 billion over the period 1996–2011. The result suggests that policy makers may need to revisit the provisions for granting market exclusivity to incremental innovations.

Tariffs, R&D, and two merger policies

AbstractWe compare welfare‐increasing and consumer‐surplus‐increasing merger policies in an oligopoly when merging firms face endogenous trade policies, and engage in cost‐reducing R&D activity. As R&D becomes less efficient, the equilibrium market structures (EMS) become less concentrated under both merger policies. When R&D is very efficient, monopoly becomes the EMS under the welfare‐increasing merger policy. This occurs as the absence of tariff and efficient R&D under monopoly limit the price increase and the gain in profits outweighs the loss in consumer surplus and tariff revenue. The results suggest that trade policies should take into account merger policies and industries' R&D efficiency. The results also show that global welfare maximization requires global merger policy coordination.

Exempting battery electric vehicles from traffic restrictions: Impacts on market and environment under Pigovian taxation

In busy metropolitan areas, traffic restrictions based on the last digits of license plates effectively ease traffic jams and improve air quality. Recently, policy-makers in China exempted battery electric vehicles (BEV) from traffic restrictions to promote their diffusion in place of conventional vehicles (CV). To examine the impacts of such an exemption on consumers and manufacturers as well as the environment, this study models the duopoly competition between BEV and CV manufacturers as a Cournot game. The numerical analyses compare three traffic restriction policies concerning BEV and CV, and reveal the pros and cons of each. In particular, the BEV-exempted policy promotes customer adoption, industry development, and environment protection with the least consumer surplus loss. As supplementary measures, relevant vehicle purchase tax and carbon tax may make such a policy more effective, respectively, in short and long terms.

The Origins of Behavioural Public Policy

The Origins of Behavioural Public Policy

Design of an endpoint indicator for mineral resource supply risks in life cycle sustainability assessment: The case of Li‐ion batteries

Concerns have risen in recent years about the accessibility of raw materials considered “critical” for technological advancements. The GeoPolRisk indicator was designed as a midpoint indicator in life cycle sustainability assessment to measure geopolitical supply risk with the aim to incorporate raw material criticality as a complement to environmental life cycle assessment (LCA). A recent review of supply risk methods conducted within the Task Force on mineral resources of the Life Cycle Initiative hosted by UN Environment Programme highlighted the opportunity to extend the methodology to an endpoint level. We address this opportunity by presenting GeoPolEndpoint, an indicator that measures the socio-economic damage of the use of mineral resources linked to the area of protection “Natural Resources” in LCA. We build upon previous efforts by introducing price elasticity considerations and modeling potential effects of supply disruptions on commodity markets in the form of a welfare loss and a loss of consumer surplus. The socio-economic damage occurs as geopolitically driven increased costs for raw materials. We test our method on aluminum, cobalt, nickel, and copper, materials relevant for lithium-ion batteries. Results show that nickel and cobalt dominate the contribution to socio-economic damages because of their price and supply risk; we estimate the impact of the use of the four analyzed materials as a potential increased cost ranging from 0.30 to 1.86 USD/kWh depending on the technology and year. We build the steps to assess how the use of certain raw materials could have a substantial economic impact when developing technologies, possibly identifying the shifting of burden due to certain materials not usually deemed important from an environmental perspective. This article met the requirements for a gold-gold JIE data openness badge described at http://jie.click/badges.

Tenant Rights, Eviction, and Rent Affordability

We use state-level differences in the legal relationship between landlords and tenants to estimate the impact of these differences on housing markets. We construct a search-theoretic model of landlord and tenant search and matching, which predicts that an increase in the cost of eviction reduces the number of evictions, but raises rents and homeless rates, and lowers housing supply and vacancy rates. To test these predictions, we construct an annual index to measure the level of the legal protection of tenant rights in each state. Our instrumental variable results indicate while a one-unit increase in the Tenant-Right Index reduces eviction rate by 8.9 percent, rental housing is 6.1 percent more expensive in areas where tenants have more protections against landlords. A higher Tenant-Right Index is also associated with a decrease in housing supply and an increase in the homeless rate. Taken together, our findings highlight a significant trade-off between tenant protections and rent affordability. Thus the welfare effects of tenant rights depend on the presumably large benefits for those who avoid eviction versus a loss of consumer surplus for other housing consumers.

Impact of Regulated Biogas Market Structure on Benefits of Biogas in Ghana

Improved environmental management facilities provide social benefits to economic agents in Ghana. Biogas technology facility is one solution that offers societal gains. However, the maximization of social benefit in some cases depends on the structure of the market. The objective of this study was to examine loss in consumer surplus and gain in producer surplus, and if there was, deadweight loss relating to regulated biogas market structure in Ghana. The simple market models were fundamental tools in the economic surplus method used for the study. The results of the study showed that regulated monopoly although productive reduces societal gains and so inefficient compared with the free market. The regulated monopolist‖ producer gain was 13%, but there was 37% and 41% loss to consumers and investors‖ NPV respectively. There was also a deadweight loss of US$18,140.00. Market forces allow consumers to be future regulators of previously government regulated 2nd and 3rd degree discriminating monopoly. It is possible to avoid Market forces regulation in biogas diffusion when participants are reluctant to hike price.

Fuel Subsidies Versus Market Power: Is There a Countervailing Second-Best Optimum?

Fuel subsidies distort end-use prices below cost, resulting in overconsumption and huge environmental cost. On the other hand, the mark-up over cost due to the exercise of market power results in the social loss of consumer surplus. We open a new line of inquiry into the potential for a market-based solution from these two countervailing forces: can the two offsetting distortions conceivably achieve a second- best optimum? Relying on dynamic panel techniques and gasoline market data for 68 developing countries, we uncover an excessive second-best subsidy offset to market power mark-up on the order of 4.5. Our results indicate that the potential for policy failure strongly exceeds the potential for market failure in our model, and gasoline prices across our sample may not be aligned with vigorous anti-climate change policy.

What Caused the Smartphone Revolution?

This paper examines the contribution of 3G and 4G cellular technologies to the smartphone revolution. It relies on quasi-natural experiments in which these technologies were launched at different times and deployed at different rates across countries while the availability of handsets, operating systems, and apps were similar. Using panel data regressions, we find that average smartphone connections per capita would have been at least 68 percent lower if the countries only had 2G cellular networks and average cellular data use would have been at least 41 percent lower if the countries had 3G coverage but did not have 4G coverage as of 2017. For the US, much of the adoption and online use of smartphones would not have occurred in the absence of 3G and 4G, leading to a substantial loss of consumer surplus. Other evidence indicates that Wi-Fi networks were not sufficient for the widespread adoption of smartphones, app development, or increased use of apps by consumers and that the development of major apps was an endogenous response to the deployment of advanced cellular technologies.

Tobacco Regulation and Cost-Benefit Analysis: How Should We Value Foregone Consumer Surplus?

Recent tobacco regulations proposed by the Food and Drug Administration have raised a thorny question: how should the cost-benefit analysis accompanying such policies value foregone consumer surplus associated with regulation-induced reductions in smoking? In a model with rational and fully informed consumers, this question is straightforward. There is disagreement, however, about whether consumers are rational and fully informed, and the literature offers little practical guidance about what approach the FDA should use if they are not. In this paper, we outline the history of the FDA's recent attempts to regulate cigarettes and other tobacco products and how they have valued foregone consumer surplus in cost-benefit analyses. We advocate replacing the approach used in most of this literature, which first calculates health gains associated with regulation and then "offsets" them by some factor reflecting consumer surplus losses, with a more general behavioral public finance framework for welfare analysis. This framework applies standard tools of welfare analysis to consumer demand that may be "biased" (that is, not necessarily rational and fully informed) without requiring specific assumptions about the reason for the bias. This framework would require estimates of both biased and unbiased consumer demand; we sketch an agenda to help develop these in the context of smoking. The use of this framework would substantially reduce the confusion currently surrounding welfare analysis of tobacco regulation.

Joint audit, audit market structure, and consumer surplus

We use a structural application of the discrete choice model to investigate how the introduction of a joint audit policy would affect audit market structure and consumer surplus. We perform this policy evaluation by identifying demand fundamentals in a joint audit regime and applying them to a single audit regime. We find that a joint audit requirement has the potential to change the audit market structure substantially but that the effects are sensitive to the specific policy design. For example, small audit firms gain market share in a joint audit regime but only if an equal sharing of the workload between the two joint auditors is not required. Our counterfactual analysis reveals that the introduction of a joint audit regime would be associated with a substantial loss of consumer surplus. The loss results from restricting clients from giving all of the audit work to their most preferred audit firm, but it is partly offset by gains in consumer surplus deriving from the opportunity to choose the best combination of auditor pairs.

Joint Audit, Audit Market Structure, and Consumer Surplus

We use a structural application of the discrete choice model to investigate how the introduction of a joint audit policy would affect audit market structure and consumer surplus. We perform this policy evaluation by identifying demand fundamentals in a joint audit regime and applying them to a single audit regime. We find that a joint audit requirement has the potential to change the audit market structure substantially but that the effects are sensitive to the specific policy design. For example, small audit firms gain market share in a joint audit regime but only if an equal sharing of the workload between the two joint auditors is not required. Our counterfactual analysis reveals that the introduction of a joint audit regime would be associated with a substantial loss of consumer surplus. The loss results from restricting clients from giving all of the audit work to their most preferred audit firm, but it is partly offset by gains in consumer surplus deriving from the opportunity to choose the best combination of auditor pairs. Our policy evaluation should be of interest to regulators, audit firms, and audit clients.

Welfare Changes in the Cournot Setting with an Empirical Application to the Telecommunications Industry

I characterize the efficiency of the Cournot equilibrium and provide bounds for the loss in consumer surplus, producer surplus and welfare when the number of firms in the market changes. I only assume that demand is decreasing in price and costs increasing in the quantity produced as long as equilibrium exists. I show how price, demand and average cost, before and after the number of firms in the market changes, can be used to compute these bounds. I apply these bounds to the Portuguese wireline market and conclude that welfare increased significantly when the monopolist was split in 2007.

Flawed Economic Models Have Misled RPM Policy: Changes in Canada, Europe and the United States

Some of the influential literature that supports the resale price maintenance efficiency view is flawed when it relies on presale services that do not modify the value-in-use of a good. Crucially, we consider that value-in-use may differ from prepurchase perceived value. We apply the value-in-use standard, which exposes the loss in consumer surplus in Bork’s model and reveals that even Bork’s dissenters significantly underestimate their calculated losses to inframarginal consumers. When consumer surplus is the antitrust/competition policy standard, our results suggest that a rule-of-reason regime where authorities or agencies bear the burden of proof can be unfavourable to consumers.

MEASUREMENT AND ANALYSIS OF THE ECONOMIC EFFECTS OF PRICE POLICIES FOR FISH IN EGYPT

Prices reflect the relative scarcity of resources in terms of planning is based under the free-market mechanisms for price and market signals as an essential mechanism in the allocation of resources and guidance system, Price is also working on consumer directed toward maximizing satisficing the resources available to them, which leads to maximizing the well-being of the community. The research problem is in direct government intervention in price policy, which may give rise to a variation in the local and indirect world prices lead to non-optimal utilization of the resources used in the production process, which affects the welfare of producers and consumers, as well as on government revenue and the outcome of the state foreign trade. research aims to identify the price differences between local and world prices resulting from price, The policies fish and by estimating the partial equilibrium model to examine the effect influence of the policies of government intervention at all stages of fish flow in the market, by measuring the efficiency of the product, the consumer, the community level, and measurement of well-being at the community level, as well as measurement of government revenues and this may help to measure the efficiency of these policies in achieving its objectives and examine the effects on producers, consumers and the overall economy. The results showed the following The average nominal protection for fish rate during the study period (1998-2013) amounted to 0.67 i.e. it is greater than zero, which means that the state supports the producers of fish by about at 67% in favor of the producers of fish on the expense of the consumer represented in the higher domestic price for the world price, The results indicate that the concern of the State on promoting fish producers to reduce the size of the gap and reduce the import of foreign currency into force. The study showed also that the expansion of fish production leads to increased foreign exchange earnings by reducing imports and reduce the food gap, where the maximum fish production reached amounted to 1372.0, 1454.4 during the years 2012.2013, respectively, while the maximum foreign exchange earnings reached a maximum in 2012, 2013 amounted to 27067.03. The results of the welfare check gains in producer excess as the average change in the product excess amounted to 3.1336 billion pounds, which reflects the impact of price policy applied, while under the negative values of consumer excess has been achieved loss in consumer surplus, bringing the average loss during the study period of about 5566.88 million pounds. Decline in consumer surplus was due to the local consumer bear the superiority of market forces and the presence of protectionist policy to support the product and taxing the consumer, leading to increased consumer spending as a result of the purchase of small quantities at high prices, leading to lower prices of consumer welfare.

Impacts of climate change and ocean acidification on coral reef fisheries: An integrated ecological–economic model

Coral reefs are highly productive shallow marine habitats at risk of degradation due to CO2-mediated global ocean changes, including ocean acidification and rising sea temperature. Consequences of coral reef habitat loss are expected to include reduced reef fisheries production. To our knowledge, the welfare impact of reduced reef fish supply in commercial markets has not yet been studied. We develop a global model of annual demand for reef fish in regions with substantial coral reef area and use it to project potential consumer surplus losses given coral cover projections from a coupled climate, ocean, and coral biology simulation (CO2-COST). Under an illustrative high emission scenario (IPCC RCP 8.5), 92% of coral cover is lost by 2100. Policies reaching lower radiative forcing targets (e.g., IPCC RCP 6.0) may partially avoid habitat loss, thereby preserving an estimated $14 to $20 billion in consumer surplus through 2100 (2014$ USD, 3% discount). Avoided damages vary annually, are sensitive to biological assumptions, and appear highest when coral ecosystems have moderate adaptive capacity. These welfare loss estimates are the first to monetize ocean acidification impacts to commercial finfisheries and complement the existing estimates of economic impacts to shellfish and to coral reefs generally.