Pub Date : 2021-01-08DOI: 10.1007/978-3-030-29980-4_103
J. van der Heijden
{"title":"Regulation As Public Service, Public Servants As Regulators","authors":"J. van der Heijden","doi":"10.1007/978-3-030-29980-4_103","DOIUrl":"https://doi.org/10.1007/978-3-030-29980-4_103","url":null,"abstract":"","PeriodicalId":11797,"journal":{"name":"ERN: Regulation (IO) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-01-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81320042","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Owing to the extensive harm that cartels could potentially cause and create to the economies at national and international levels as well as to the consumers, they become concerns that need to be addressed extensively in relation to the interest of the public. There are multiple factors that have to be taken into account in the study of public interest surrounding cartels, which include, recognition of a target base of consumers, the impact of enforcement action on them in the surrounding legal scenario, and the extent of corrigibility of the actions against the cartel operators, alleged in cases of violation of the aforesaid legal scenario. In determining each of the aforementioned factors prior to the setting up or institutionalization of a cartel, it is imperative to keep the nature of practice within the limits of what is legally construed as a competitive practice, and in exercise of legal due diligence, look into the potential level of consumer detriment, the existing market scenario as well as the priority of the prevailing nature of market, and the actual resources present for investigation of the cartel. Analysing the aforementioned issues in India, this paper, through a critical analysis of the relevant provisions of the Competition Act, 2002 (hereinafter “the Act”), covers issues that arise in light of public interest and its consideration, in the process of cartelization. The authors base their comment on insufficiency of the provisions of the Act to meet the issues of public interest through a detailed analysis of the interplay between consumer benefits and high level of competition between market participants operating on the same relevant market. In doing so, the authors look into adherence to competition policies and the welfare of the consumers. In addition to this, the authors attempt to explore the issue of emergency cartelisation, and bring out the need for its statutory inclusivity.
{"title":"Public Interest in Cartelization: A Factor to Develop in Regulating Anti-Competitive Practices in India","authors":"Tejas Hinder, Ashutosh Kumar Singh, G. Singh","doi":"10.2139/SSRN.3758954","DOIUrl":"https://doi.org/10.2139/SSRN.3758954","url":null,"abstract":"Owing to the extensive harm that cartels could potentially cause and create to the economies at national and international levels as well as to the consumers, they become concerns that need to be addressed extensively in relation to the interest of the public. \u0000 \u0000There are multiple factors that have to be taken into account in the study of public interest surrounding cartels, which include, recognition of a target base of consumers, the impact of enforcement action on them in the surrounding legal scenario, and the extent of corrigibility of the actions against the cartel operators, alleged in cases of violation of the aforesaid legal scenario. In determining each of the aforementioned factors prior to the setting up or institutionalization of a cartel, it is imperative to keep the nature of practice within the limits of what is legally construed as a competitive practice, and in exercise of legal due diligence, look into the potential level of consumer detriment, the existing market scenario as well as the priority of the prevailing nature of market, and the actual resources present for investigation of the cartel. \u0000 \u0000Analysing the aforementioned issues in India, this paper, through a critical analysis of the relevant provisions of the Competition Act, 2002 (hereinafter “the Act”), covers issues that arise in light of public interest and its consideration, in the process of cartelization. The authors base their comment on insufficiency of the provisions of the Act to meet the issues of public interest through a detailed analysis of the interplay between consumer benefits and high level of competition between market participants operating on the same relevant market. In doing so, the authors look into adherence to competition policies and the welfare of the consumers. In addition to this, the authors attempt to explore the issue of emergency cartelisation, and bring out the need for its statutory inclusivity.","PeriodicalId":11797,"journal":{"name":"ERN: Regulation (IO) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-01-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86274237","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Social media platforms such as Instagram have become an important channel for influencer marketing. Regulatory bodies such as FTC(U.S.) and ASA(U.K.) require influencers on these platforms to clearly declare an advertised social media post as an ad using hashtags such as #ad, #sponsored. However, many a times influencers fail to disclose the endorsements. In light of these malpractices, FTC sent notices to 90 influencers in March 2017. In this paper, I estimate the impact of such disclosure notices on a) disclosure levels b) follower engagement. I create a novel dataset which consists of nearly 150,000 posts across 60 influencers. I use difference-in-difference method to find out that after the notice was sent out disclosure increases. I find that follower engagement (likes and comments) for the influencers which received warnings from the FTC got reduced substantially. Interestingly, I find substantial spillover effects of these notices on influencers which are in FTC jurisdiction but didn’t received the notice. Specifically, disclosure percent of these influencers increased and engagement rate reduced, however, as expected these influencers are relatively less impacted by these notices as compared to the influencers which did receive the FTC notice. I find these results consistent across different categories of influencers. This research is relevant for both social media influencers and policy makers, in that, influencers should preemptively disclose because if the regulator sends out notice, then customers may punish the influencer through less engagement. For policymakers, notices turn out to be a substantive policing instrument, in that, it not only effects the influencers who get the notice but also the influencers who are within the jurisdiction but didn’t get the notice.
{"title":"Regulatory Warnings and Endorsement Disclosures on Social Media","authors":"Abhishek Rishabh","doi":"10.2139/ssrn.3777034","DOIUrl":"https://doi.org/10.2139/ssrn.3777034","url":null,"abstract":"Social media platforms such as Instagram have become an important channel for influencer marketing. Regulatory bodies such as FTC(U.S.) and ASA(U.K.) require influencers on these platforms to clearly declare an advertised social media post as an ad using hashtags such as #ad, #sponsored. However, many a times influencers fail to disclose the endorsements. In light of these malpractices, FTC sent notices to 90 influencers in March 2017. In this paper, I estimate the impact of such disclosure notices on a) disclosure levels b) follower engagement. I create a novel dataset which consists of nearly 150,000 posts across 60 influencers. I use difference-in-difference method to find out that after the notice was sent out disclosure increases. I find that follower engagement (likes and comments) for the influencers which received warnings from the FTC got reduced substantially. Interestingly, I find substantial spillover effects of these notices on influencers which are in FTC jurisdiction but didn’t received the notice. Specifically, disclosure percent of these influencers increased and engagement rate reduced, however, as expected these influencers are relatively less impacted by these notices as compared to the influencers which did receive the FTC notice. I find these results consistent across different categories of influencers. This research is relevant for both social media influencers and policy makers, in that, influencers should preemptively disclose because if the regulator sends out notice, then customers may punish the influencer through less engagement. For policymakers, notices turn out to be a substantive policing instrument, in that, it not only effects the influencers who get the notice but also the influencers who are within the jurisdiction but didn’t get the notice.","PeriodicalId":11797,"journal":{"name":"ERN: Regulation (IO) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83885172","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Financial firms, and banks in particular, rely heavily on complex suites of interrelated statistical models in their risk management and business reporting infrastructures. Statistical model infrastructures are often developed using a piecemeal approach to model building, in which different components are developed and validated separately. This type of modeling framework has significant limitations at each stage of the model management life cycle, from development and documentation to validation, production, and redevelopment. We propose an empirical framework, spurred by recent developments in the implementation of Generalized Structural Equation Modeling (GSEM), which brings to bear a modular and all-inclusive approach to statistical model building. We illustrate the “game changing” potential of this framework with an application to the stress testing of credit risk for a representative portfolio of mortgages; we also extend it to the analysis of the allowance for credit loss under the novel Current Expected Credit Loss (CECL) accounting regulation. We illustrate how GSEM techniques can significantly enhance every step of the modeling framework life cycle. We also illustrate how GSEM can be used to combine various risk management projects and tasks into a single framework; we specifically illustrate how to seamlessly integrate stress testing and CECL (or IFRS9) frameworks and champion, and challenger, modeling frameworks. Finally, we identify other areas of model risk management that can benefit from the GSEM framework and highlight other potentially fruitful applications of the methodology.
{"title":"Can We Take the 'Stress' Out of Stress Testing? Applications of Generalized Structural Equation Modeling to Consumer Finance","authors":"José J. Canals-Cerdá","doi":"10.2139/ssrn.3775322","DOIUrl":"https://doi.org/10.2139/ssrn.3775322","url":null,"abstract":"Financial firms, and banks in particular, rely heavily on complex suites of interrelated statistical models in their risk management and business reporting infrastructures. Statistical model infrastructures are often developed using a piecemeal approach to model building, in which different components are developed and validated separately. This type of modeling framework has significant limitations at each stage of the model management life cycle, from development and documentation to validation, production, and redevelopment. We propose an empirical framework, spurred by recent developments in the implementation of Generalized Structural Equation Modeling (GSEM), which brings to bear a modular and all-inclusive approach to statistical model building. We illustrate the “game changing” potential of this framework with an application to the stress testing of credit risk for a representative portfolio of mortgages; we also extend it to the analysis of the allowance for credit loss under the novel Current Expected Credit Loss (CECL) accounting regulation. We illustrate how GSEM techniques can significantly enhance every step of the modeling framework life cycle. We also illustrate how GSEM can be used to combine various risk management projects and tasks into a single framework; we specifically illustrate how to seamlessly integrate stress testing and CECL (or IFRS9) frameworks and champion, and challenger, modeling frameworks. Finally, we identify other areas of model risk management that can benefit from the GSEM framework and highlight other potentially fruitful applications of the methodology.","PeriodicalId":11797,"journal":{"name":"ERN: Regulation (IO) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91444906","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The protection afforded to franchisees differs widely across the world. Nations with economically strong franchise sectors typically regulate the contract’s bargaining phase and post-formation. Responding to the European Parliament’s call for a review of regulations governing Europe’s underperforming retail franchise sector, we propose reforms to counter the structural and economic inequality between franchise parties. Drawing on lessons from comparatively successful federal frameworks, we present a regulatory trifecta of mandatory disclosures to prospective franchisees, required express or implied contractual obligations and rights for both franchisors and franchisees, and compulsory adherence to certain protections of franchisees throughout the franchise relationship.
{"title":"U.S. Franchise Regulation as a Paradigm for the European Union","authors":"R. W. Emerson, Michala Meiselles","doi":"10.2139/ssrn.3910856","DOIUrl":"https://doi.org/10.2139/ssrn.3910856","url":null,"abstract":"The protection afforded to franchisees differs widely across the world. Nations with economically strong franchise sectors typically regulate the contract’s bargaining phase and post-formation. Responding to the European Parliament’s call for a review of regulations governing Europe’s underperforming retail franchise sector, we propose reforms to counter the structural and economic inequality between franchise parties. Drawing on lessons from comparatively successful federal frameworks, we present a regulatory trifecta of mandatory disclosures to prospective franchisees, required express or implied contractual obligations and rights for both franchisors and franchisees, and compulsory adherence to certain protections of franchisees throughout the franchise relationship.","PeriodicalId":11797,"journal":{"name":"ERN: Regulation (IO) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"74675483","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The United States Department of Justice recently announced an antitrust lawsuit against the search and search advertising giant, Google. Referencing anticompetitive practices that restrict competition and harm consumers, the DOJ, by attempting to break up Google’s control of the search market due to harm it is inflicting upon consumers as a result of its monopoly power, is continuing a policy of ensuring competitive markets that goes back more than a century to President Theodore Roosevelt and his crusade against trusts, and in particular, John D. Rockefeller’s Standard Oil Monopoly.
Monopolistic behavior can take many forms, but opponents of monopolies, of which there are many, share the common criticism that monopolies are toxic for the economy and commit an injustice against individual consumers. Their solution to these harmful effects includes robust regulation and providing readily available detailed information to the public demonstrating the extent to which industry in the United States is concentrated.
Unfortunately, while it is true that monopolies have the power to cause harm through the market power possessed by monopolies, it is equally true that monopolies are uniquely capable of taking actions that benefit the country, the economy, and consumers. The benefits of monopoly do not receive a lot of publicity because it’s not politically valuable and goes against the traditions of thought to which Americans have been subjected for well over a century. The fact that 10 percent of the world’s public companies generate 80 percent of all profits and the United States’ 100 largest companies have increased their share of GDP creation by 13 percentage points to 46 percent in two decades, it’s urgent to discuss monopolies more expansively and focus on the facts rather than political talking points.1
This paper will make the argument that monopolies are overregulated, which harms the economy and its consumers more so than it helps. Monopolies should be subject to less scrutiny in the U.S. economy to perform their functions more efficiently. Regulators have alternative means of guarding against the negative effects of monopoly while allowing for the positive effects.
{"title":"Monopolies: A Threat to Consumers or a Political Ploy","authors":"James S. Rowe","doi":"10.2139/ssrn.3752950","DOIUrl":"https://doi.org/10.2139/ssrn.3752950","url":null,"abstract":"The United States Department of Justice recently announced an antitrust lawsuit against the search and search advertising giant, Google. Referencing anticompetitive practices that restrict competition and harm consumers, the DOJ, by attempting to break up Google’s control of the search market due to harm it is inflicting upon consumers as a result of its monopoly power, is continuing a policy of ensuring competitive markets that goes back more than a century to President Theodore Roosevelt and his crusade against trusts, and in particular, John D. Rockefeller’s Standard Oil Monopoly.<br><br>Monopolistic behavior can take many forms, but opponents of monopolies, of which there are many, share the common criticism that monopolies are toxic for the economy and commit an injustice against individual consumers. Their solution to these harmful effects includes robust regulation and providing readily available detailed information to the public demonstrating the extent to which industry in the United States is concentrated.<br><br>Unfortunately, while it is true that monopolies have the power to cause harm through the market power possessed by monopolies, it is equally true that monopolies are uniquely capable of taking actions that benefit the country, the economy, and consumers. The benefits of monopoly do not receive a lot of publicity because it’s not politically valuable and goes against the traditions of thought to which Americans have been subjected for well over a century. The fact that 10 percent of the world’s public companies generate 80 percent of all profits and the United States’ 100 largest companies have increased their share of GDP creation by 13 percentage points to 46 percent in two decades, it’s urgent to discuss monopolies more expansively and focus on the facts rather than political talking points.1<br><br>This paper will make the argument that monopolies are overregulated, which harms the economy and its consumers more so than it helps. Monopolies should be subject to less scrutiny in the U.S. economy to perform their functions more efficiently. Regulators have alternative means of guarding against the negative effects of monopoly while allowing for the positive effects.","PeriodicalId":11797,"journal":{"name":"ERN: Regulation (IO) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-12-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82287173","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
I examine an incumbent monopolist's pricing strategy in a two-period durable goods market for complements, such as the Operating System and software applications, and its compatibility stance with a future competitor when the market for applications is characterised by direct network effects and quality growth as well as potential switching costs. Consumers arrive in the market in the first period and the “threat” to exercise their option to postpone their purchase may lead the incumbent to charge a price for its Operating System that is lower than that of a static monopolist no matter what the compatibility regime. I also show that the incumbent may support compatibility regardless of the presence of switching costs. The welfare effects of mandatory compatibility are ambiguous.
{"title":"Pricing and Compatibility in Network Goods Markets","authors":"T. Athanasopoulos","doi":"10.2139/ssrn.3235943","DOIUrl":"https://doi.org/10.2139/ssrn.3235943","url":null,"abstract":"I examine an incumbent monopolist's pricing strategy in a two-period durable goods market for complements, such as the Operating System and software applications, and its compatibility stance with a future competitor when the market for applications is characterised by direct network effects and quality growth as well as potential switching costs. Consumers arrive in the market in the first period and the “threat” to exercise their option to postpone their purchase may lead the incumbent to charge a price for its Operating System that is lower than that of a static monopolist no matter what the compatibility regime. I also show that the incumbent may support compatibility regardless of the presence of switching costs. The welfare effects of mandatory compatibility are ambiguous.","PeriodicalId":11797,"journal":{"name":"ERN: Regulation (IO) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-12-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78409826","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The green antitrust movement aims to increase sustainability efforts by allowing restrictions of competition. Yet the economic evidence so far points to more, not less, competition as the right stimulus for inducing sustainability efforts. Incentives to produce more sustainably are stronger when firms compete than when they are allowed to make sustainability agreements. This is also true when firms are intrinsically motivated to promote sustainability. It is not good policy to relax the general competition rules in order to accommodate the rare genuine sustainability agreement. However well-intended, green antitrust risks damaging both competition and the environment. It will suppress the gathering market forces for companies to produce more sustainably, overburden competition authorities, invite abusive cartel greenwashing, and give the part of government that should promote sustainability further excuse to shun their responsibility for designing proper regulation.
{"title":"Green Antitrust: Friendly Fire in the Fight against Climate Change","authors":"M. Schinkel, L. Treuren","doi":"10.2139/ssrn.3749147","DOIUrl":"https://doi.org/10.2139/ssrn.3749147","url":null,"abstract":"The green antitrust movement aims to increase sustainability efforts by allowing restrictions of competition. Yet the economic evidence so far points to more, not less, competition as the right stimulus for inducing sustainability efforts. Incentives to produce more sustainably are stronger when firms compete than when they are allowed to make sustainability agreements. This is also true when firms are intrinsically motivated to promote sustainability. It is not good policy to relax the general competition rules in order to accommodate the rare genuine sustainability agreement. However well-intended, green antitrust risks damaging both competition and the environment. It will suppress the gathering market forces for companies to produce more sustainably, overburden competition authorities, invite abusive cartel greenwashing, and give the part of government that should promote sustainability further excuse to shun their responsibility for designing proper regulation.","PeriodicalId":11797,"journal":{"name":"ERN: Regulation (IO) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-12-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"88679948","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Despite its vital role in the modern marketplace, attention has largely escaped the notice of the antitrust community. Existing discourse exhibits a variety of misconceptions and flawed prescriptions. One example is the widely held notion that attention markets necessitate two-sided platform analysis. Another is a marked overemphasis on data-collection practices. Yet another is that human users, viewers, and listeners are “the consumers” in these markets. And a fourth is that competition for attention occurs within one massive relevant market, obviating the possibility that any single firm could exercise market power. In light of nascent enforcement actions against Facebook, Google, and others, these defects require correction. This Article begins by explaining the basic economics of attention markets, which often involve zero-price barter transactions. It turns next to the appropriate antitrust methodology for market definition. Attention markets need not encompass two “sides”; instead, they are best understood as traditional top-down distribution systems. The oft-used SSNIP test is facially unworkable in zero-price attention markets, but the SSNIC or SSNDQ variants may offer some utility. Practical indicia will often be more useful, however, given the unwieldy nature of hypothetical-monopolist tests. Regardless of methodology, courts and enforcers should take care to avoid the “massive market” fallacy espoused by some commentators. As to market power, both market shares and direct evidence can be useful. The three most common methods for assigning shares—time on-site, active users, and advertising revenues—can each shed light on the issue. Wherever available, direct evidence on attention-cost changes and competitive responses (or lack thereof) should play a significant role. Turning to anticompetitive effects, the “attention overcharge” should be a core concern. Recent litigation efforts have framed this harm instead as “lower quality,” an approach that will often be suboptimal. Finally, competition for attention can lead to overuse, overconsumption, heightened racial and gender animus, and other societal ills. In response, courts and enforcement agencies should extend leniency to certain attention-related conduct that might initially appear harmful.
{"title":"Antitrust in Attention Markets: Definition, Power, Harm","authors":"J. Newman","doi":"10.2139/ssrn.3745839","DOIUrl":"https://doi.org/10.2139/ssrn.3745839","url":null,"abstract":"Despite its vital role in the modern marketplace, attention has largely escaped the notice of the antitrust community. Existing discourse exhibits a variety of misconceptions and flawed prescriptions. One example is the widely held notion that attention markets necessitate two-sided platform analysis. Another is a marked overemphasis on data-collection practices. Yet another is that human users, viewers, and listeners are “the consumers” in these markets. And a fourth is that competition for attention occurs within one massive relevant market, obviating the possibility that any single firm could exercise market power. In light of nascent enforcement actions against Facebook, Google, and others, these defects require correction. This Article begins by explaining the basic economics of attention markets, which often involve zero-price barter transactions. It turns next to the appropriate antitrust methodology for market definition. Attention markets need not encompass two “sides”; instead, they are best understood as traditional top-down distribution systems. The oft-used SSNIP test is facially unworkable in zero-price attention markets, but the SSNIC or SSNDQ variants may offer some utility. Practical indicia will often be more useful, however, given the unwieldy nature of hypothetical-monopolist tests. Regardless of methodology, courts and enforcers should take care to avoid the “massive market” fallacy espoused by some commentators. As to market power, both market shares and direct evidence can be useful. The three most common methods for assigning shares—time on-site, active users, and advertising revenues—can each shed light on the issue. Wherever available, direct evidence on attention-cost changes and competitive responses (or lack thereof) should play a significant role. Turning to anticompetitive effects, the “attention overcharge” should be a core concern. Recent litigation efforts have framed this harm instead as “lower quality,” an approach that will often be suboptimal. Finally, competition for attention can lead to overuse, overconsumption, heightened racial and gender animus, and other societal ills. In response, courts and enforcement agencies should extend leniency to certain attention-related conduct that might initially appear harmful.","PeriodicalId":11797,"journal":{"name":"ERN: Regulation (IO) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-12-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91209688","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We develop a new framework to study regulatory policy in the presence of unregulated financial institutions ("shadow banks'') when there are pecuniary externalities. Using sufficient statistics, we show that optimal regulation in the presence of shadow banks is scaled by a "regulatory arbitrage multiplier.'' This multiplier only depends on aggregate shadow banking activity. Our framework provides guidance on how to regulate currently unregulated financial institutions and sectors. To first order, the marginal welfare gain of regulating a shadow bank is large when a notion of its intermediary activity substitution effects across its activities is large. We further characterize optimal activity-based regulation whereby the planner regulates a particular activity across all shadow banks, e.g. a tax on debt. To first order, gains from activity regulation are large when average substitution effects across intermediaries are large for the regulated activity. We show how our results extend to broader classes of non-pecuniary externalities.
{"title":"Shadow Banks and Optimal Regulation","authors":"C. Clayton, A. Schaab","doi":"10.2139/ssrn.3746495","DOIUrl":"https://doi.org/10.2139/ssrn.3746495","url":null,"abstract":"We develop a new framework to study regulatory policy in the presence of unregulated financial institutions (\"shadow banks'') when there are pecuniary externalities. Using sufficient statistics, we show that optimal regulation in the presence of shadow banks is scaled by a \"regulatory arbitrage multiplier.'' This multiplier only depends on aggregate shadow banking activity. Our framework provides guidance on how to regulate currently unregulated financial institutions and sectors. To first order, the marginal welfare gain of regulating a shadow bank is large when a notion of its intermediary activity substitution effects across its activities is large. We further characterize optimal activity-based regulation whereby the planner regulates a particular activity across all shadow banks, e.g. a tax on debt. To first order, gains from activity regulation are large when average substitution effects across intermediaries are large for the regulated activity. We show how our results extend to broader classes of non-pecuniary externalities.<br>","PeriodicalId":11797,"journal":{"name":"ERN: Regulation (IO) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-12-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75044447","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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