Price cap regulation and water quality

A number of studies suggest that price cap regulation may reduce the quality of the regulated good. This paper analyzes the impact on drinking water quality of a shift from cost-of-service to price cap regulation in Denmark, using a balanced panel of drinking water companies, for the period 2008 to 2016. The price cap was introduced in 2011 for companies above a certain threshold size. We exploit this quasi-experimental setting to estimate the impact of the shift in regulation using a regression discontinuity difference-in-differences approach. Our measure of drinking water quality is based on results from a compulsory surveillance drinking water testing program, which investigates whether or not water samples contain a level of microbiological content that exceeds limit values. More specifically, we compare the change over time in water quality for a treatment group of 113 companies regulated with price caps that have a size close to the threshold size for being regulated, with the change in drinking water quality for a control group of 282 companies that are below but close to the threshold size. We find that the shift in regulation has not caused a reduction in drinking water quality in Denmark.

An Application of the Tourist Test to Colombian Merchants

Cash is still widely used in Colombia, even among merchants that accept payment cards. Indeed, 60% of these merchants use dissuasive strategies to make their clients pay with cash. This shows that merchant service costs (MSC) for cards are not optimal in the sense of the Tourist Test. We present estimates of MSC compatible with the Tourist Test, such that merchants are indifferent between being paid with cash or cards. We find that cash is less costly than cards at the average retail-sales transaction-value, hence there is no positive optimal MSC at this ticket value. For the average card transaction ticket, the optimal MSC would be positive but far below the rates charge by the industry (0.74% in a short-term scenario). Yet, the additional incentive that sales-tax evasion provides to cash payments reduces the Tourist Test MSC to 0.44%. Our estimates for long-term scenarios yield even lower optimal MSC. An average price cap regulation that strikes a middle ground between these figures, and is complemented with sales-tax evasion measures, should discourage merchant strategies that deter consumers from paying with cards and will accommodate the wide heterogeneity in merchants´ scale, payment processing processes and ticket size. These results should be taken as a guideline as the estimations depend on the underlying assumptions and only consider the merchant´s side of the card industry.

Price Cap Models in Pharmaceutical Online-to-Offline Supply Chains

Pharmaceutical supply chains are often highly complex with conflicting objectives of social welfare and profit maximization. Furthermore, there are various stakeholders including pharmaceutical manufacturer, distributors, retailers, patients, and the government. In this paper, we consider a two-stage supply chain consisting of one pharmaceutical manufacturer and a pharmacy with online and offline channels. We focus on four price cap models: no price cap regulation, pharmaceutical manufacturer’s price cap regulation, pharmacy price cap regulation, and linkage price cap regulation. We apply game theory, investigate how the price cap regulations affect the firms’ pricing, and evaluate the economic performance and social welfare of the dual-channel pharmaceutical supply chain. Our findings show that first, like the single-channel pharmaceutical supply chain, the profit of the regulated firm always decreases and the profit of the unregulated firm always increases when they are under one-sided price cap regulations. Second, the impacts of the linkage price cap regulation on the supply chain are more complicated depending on the linkage coefficient and market share. Overall, our findings can provide theoretical and practical insights to help the government devise price cap regulations for complex modern pharmaceutical supply chains.

Does price-cap regulation work for increasing access to contraceptives? Aggregate- and pharmacy-level evidence from Colombia

Background: Price caps through international reference pricing are widely used around the World, but not so commonly in over-the-counter markets (OTC). We study this type of regulation for the case of oral contraceptives in Colombia, which is a de facto OTC market. Objectives: We aim to establish whether the regulation triggered a competitive response within and across product categories (active pharmaceutical ingredients).We also study whether regulated products targeted to customers from high socio-economic status are now distributed in pharmacies from low socio-economic neighborhoods.Methods: First, we use a fixed effects linear panel model to estimate the change in prices and quantities associated with the new regulation for regulated and non-regulated products using administrative data at the wholesale level, according to three price tiers. Second, we conducted an audit study with 213 community pharmacies in the city of Bogotá, Colombia. We visited pharmacies twice, before and after the introduction of the price cap, collecting information on prices and availability of six selected brands. Findings: The wholesale-level analysis reveals a price reduction in regulated and non-regulated products with a regulated active ingredient. Traded quantities increase for the same product types, but only for those in the most expensive categories. Besides, the traded quantities of non-regulated products decrease.However, the traded quantities of non-regulated products in the Top, Intermediate, and Bottom price categories decreased. Although this price reduction is also transmitted to community pharmacies, the availability of the high-end and mid-range contraceptives included in our audit study decreases as well. We provide suggestive evidence that reduction in the availability of was larger in areas of low socio-economic status.Conclusions: Price cap regulations that might look as effective in lowering prices and expanding access at the aggregate level could conceal stocking patterns that negatively affect the product availability for the final consumer.

Decentralized pricing management in housing and municipal economy

Actuality of research theme. The process of Ukraine's integration into the European Community actualizes the issue of the compliance of the administrative and territorial structure with European principles of regional and local development organization, and the formation of local self-government. Nowadays the problem of developing an effective system of management of the infrastructure united territorial communities (UTCs) formation in the context of administrative and territorial reform implementation based on the principles of decentralization becomes especially acute. Problem statement. Nowadays conditions, the reform of the administrative-territorial structure and the decentralization of power in Ukraine require special attention to the problem of housing and communal services management, since its maintenance is ensured by local authorities and created in the process of reforming the united territorial communities (OTСs). Analysis of the last researches and publications. The modern aspects of decision of problems of development of territorial communities and local self-government such scientists engage in, as Pavliuk A. P., Oliinyk D. I., Batalov O. A., Datsko O. I., Murkovych L. L., Molodozhen Yu. B.and other [1-4]. The results of own researches of problem are in to [5-13]. Selection of unexplored parts of general issue. The new administrative and territorial system should become the basis for constructing a new model of territorial administration, based on the principles of decentralization, subsidiarity, balance of national interests with regional and territorial communities` interests representation, local self-governance widespread, territorial communities` power and autonomy, coherence with natural geographical capacity. That is why the problem of mechanism for managing regional housing and communal services programs and to determine the optimal pricing models taking into account world experience. Task statement, research aim. To search for new mechanisms of efficient pricing management in housing and utilities using world experience and peculiarities of domestic business practices. Method or methodology of realization of research. In the process of realization researches drawn on scientific (analysis and synthesis, induction and deduction, analytical grouping) and special (abstracting, economical-mathematical design, etc.) methods of study of the economic phenomena and processes. Exposition of basic material (job performances). In the world practice certain methods of pricing under natural monopoly were formed. The analysis of the essence and peculiarities of these methods to adopt the best practices: а) Rate of return regulation. This is the most traditional approach to set price of goods (services) of natural monopolies. It is based on cost-plus pricing calculation. It is used in Ukraine. b) Price cap regulation (price restrictions). The method`s essence is to set fixed maximum price limitations by the regulatory institution. The institution has the right to set the price, which is lower or equals the limit, and to profit. As the profit does not correlate to costs, there is the stimulating mechanism to cut them. The model assumes quite a long period between tariff revisions – 4-5 years. c) Profit-sharing plan with sliding scale. Unlike the previous method, in which natural monopoly gains significant profits, this method assumes to use the sliding scale of profit distribution between a producer and a consumer. d) Price discrimination. Price discrimination is a pricing strategy that charges customers or their groups’ different prices for the same product or service. Price difference does not depend on production costs or supply costs. Price discrimination is possible if consumers` direct price elasticity of demand is different. Conclusions. The analysis of the natural monopoly`s world pricing practice, including national housing and utilities sector has been carried out. It has been stated that the main methods of monopolistic pricing are: rate of return regulation; price cap regulation (price restrictions); profit-sharing plan with sliding scale; price discrimination; multi-rate tariffs; pricing for different competition forms, compatible with natural monopoly.The obtained findings prove the necessity of modification to the housing and utilities sector’s monopoly market by implementation of competition elements.

A jump-diffusion model for pricing electricity under price-cap regulation

In this paper, we derive a new jump-diffusion model for electricity spot price from the “Price-Cap” principle. Next, we show that the model has a non-classical mean-reverting linear drift. Moreover, using this model, we compute a new exact formula for the price of forward contract under an equivalent martingale measure and we compare it to Cartea et al. (Appl Math Finance 12(4):313–335, 2005) formula.

A Mutual Subsidy Mechanism for a Seasonal Product Supply Chain Channel Under Double Price Regulation

In this paper, we consider the decision-making and coordination mechanism of a seasonal product supply chain channel over a period consisting of a low season and a high season, where the price of the final product is strictly regulated, and the raw material is subject to a price cap regulation during the high season. The optimal decisions and profits under decentralized and centralized cases are derived for the low season and the high season. Our research indicates that, under the double price regulation, the manufacturer’s raw material order in the channel usually is not completely fulfilled during the high season and the order during the low season is usually small. Based on the results, we propose a mutual subsidy mechanism, in order to encourage the supplier to supply more raw material during the high season and to encourage the manufacturer to order more raw material during the low season.The theoretical results indicate that the mutual subsidy mechanism can effectively coordinate the seasonal product supply chain channel under the double price regulation, which is further verified by a numerical example. Moreover, the negotiation skills of the supplier and the manufacturer are also considered under the mutual subsidy mechanism, so that the spillover profit can be allocated on a win–win basis for both sides.