Regulation and welfare efficiency: evidence from China
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Abstract
Along with rapid economic growth, China has started to face the challenge of environment degradation. And, the integration of the Chinese economy into global markets has put pressure on the government to address the issue of intellectual property infringement. The government has begun to enforce copyright protection and address environmental issues by imposing regulatory policies on related markets. In this dissertation, I focus on two policies: the anti-piracy campaign enforcing music copyright protection in 2015 and the vehicle license lottery policy started in 2011 in Beijing. I empirically assess the impact of those regulations on market competition, allocative efficiency and consumer welfare.
Copyright enforcement in China since 2015 has heightened competition among music streaming services for obtaining exclusive licenses. The competition is driven by the existence of multi-homing and switching costs for consumers in choosing among services. I specify and estimate a structural model that allows consumers to tradeoff between multi-homing and switching. I use estimates to simulate market outcomes had a compulsory licensing provision been enforced. I find that with compulsory licensing, the market will evolve to a ``tipping'' equilibrium in which all users choose to exclusively subscribe to a same service that is of better quality. Although providing more music content, smaller services would lose significant market shares. This is because multi-homing users of smaller services would switch away from their services when the music content were less differentiated from others. The result suggests that a compulsory provision does not benefit the smaller services and may lead to a higher market concentration.
In the next chapter, I study a vehicle license lottery in Beijing. Although the static inefficiency from misallocation under a lottery is well-known, I introduce the concept of a dynamic inefficiency due to agents’ suboptimal timing of entering the lottery. Using a structural empirical model, I find that households on average participate in the lottery system at least four years earlier than they would in a counterfactual environment with no quantity constraint. Dynamic inefficiency accounts for the majority of the welfare loss from using the lottery policy.
In the last chapter, I formalize the concept of dynamic inefficiency via a simple theoretical model. I show that, with reasonable assumptions, an equilibrium with dynamic misallocation always exits. Consumers with lower willingness to pay for the resource will enter the lottery early in order to increase the chance of winning, although they may receive a negative utility if they win the lottery before their valuation for the resource increases.