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Regulating telecommunications has been difficult for policy-makers, who must balance freedom for business operation with fairness and value for consumers. Termination rates — the cost of ending phone calls using other networks — have been particularly contentious.
Professor Valletti's work helped regulators, including Ofcom, to model the processes involved and thereby improve regulatory pricing guidelines.
By developing a new theory of regulation — how dynamic incentives price regulation — his research has influenced policy in both UK and international telecommunications markets.
This study is part of a research project on China's electricity industry conducted jointly with the Université de la Méditerranée in France, and Swiss Electricity Ltd, and is funded by the EU. Despite three decades of market-oriented reforms in China, the electricity price-formation process is still state-controlled. The study shows how this process induces electricity producers to manipulate costs to gain an advantage when negotiating prices with the state. Consequently, despite government intervention, industrial consumers in China pay as much as their counterparts in developed Western economies with liberalised electricity sectors. These findings have informed the latest plans for price reform being prepared by the electricity regulator in China.
The methodological and applied work on micro-econometric demand analysis outlined here has been repeatedly used by the UK Competition Commission (since 2002) and the Co-operation & Competition Panel (now Monitor) of the UK Department of Health (since 2009) in their respective competition analyses, and by the Hong Kong Consumer Council in its Public Estate Supermarket Study (since 2011). It contributed to the European Commission White Paper on the quantification of antitrust damages (2010), underpinning some of the econometric methodology proposed there to assess cartel damages in EU Courts. Beckert's work in the area of micro-econometric demand analysis connects micro-economic demand theory with various econometric methodologies to assess demand-side substitution in the presence of taste heterogeneity. His research is disseminated through articles in peer-reviewed academic journals, policy articles, and through consultation by antitrust authorities, think tanks and economic consultancies.
From the 1990s UCL Economics invested in the capacity to conduct fundamental and applied research in behavioural and experimental economics. This was the basis for the research which provided the evidence base for the Office of Fair Trading to identify and act upon misleading pricing practices, particularly `drip pricing', in 2010. As a result, 12 major airlines announced that they would include debit card charges in their headline prices, and government announced that the EU-wide Consumer Rights Directive would be implemented a year earlier than it was due to go into effect.
Research undertaken at the University of East Anglia (UEA) has identified whether consumers are likely to switch supplier, whether they are likely to get a good deal, and how companies are likely to respond to specific regulatory intervention. Such research findings challenge regulators to make better decisions. An appropriate regulatory framework leads to better decisions by consumers, helping markets to work better, and resulting in lower prices and bills. This is particularly critical in the energy and water sector, which are of crucial importance to each of the 25 million households in the UK, and where implementation of some of these research findings could lead to reductions of 6% in household energy bills (which translates to a total saving of over £2.1 billion a year).
Research by the University of Southampton on competition and innovation in the pharmaceutical industry has had an impact on the pricing and reimbursement system used by the Department of Health of Cataluña when assessing the introduction of new drugs and treatments. The same research has proactively informed the recent investigation on competition in the EU pharmaceutical industry by the EU Competition. The original findings of the research, on the impact of mergers and acquisitions on different aspects of the innovation activity of this R&D-intensive industry, have also influenced antitrust policies across the two sides of the Atlantic.
The banking crisis that followed the collapse of Northern Rock in 2007 resulted in an urgent need to inject liquidity into the financial system. In order to resolve these issues, the Bank of England asked Professor Klemperer, an expert in auction theory, to help re-dseign its long-term market operations to allow the Bank of England to auction loans backed by financial collateral of varying quality. Since 2010, this has been adopted as the Bank of England's standard mechanism for its long-term repurchase operations. The potential impact of the new auction design extends beyond the Bank of England to other central banks, private industry and to industry regulators.
The energy regulator, Ofgem, drew on research from the University of Birmingham when it instructed the electricity industry to re-design transmission charges that recover £1.6 billion per year. This instruction, issued in May 2012, was the culmination of Project TransmiT which Ofgem launched in September 2010. As part of TransmiT, Ofgem commissioned three teams of academics to consider whether changes to transmission prices were desirable and, if so, to recommend changes. One of these teams was from the Universities of Birmingham and Strathclyde. The changes introduced by Ofgem — which aimed to send more accurate signals of the cost of dealing with low-carbon electricity — were those recommended by the Birmingham and Strathclyde team. As a consequence, the research has fundamentally shaped a significant change to the future of electricity pricing in Great Britain, affecting the costs incurred by the industry and the payments made by every consumer in the country.
Derek Bunn has led a research programme on understanding competition, market evolution, and prices in electricity markets. He and other researchers in the LBS Energy Markets Group have modelled production facilities in detail, their explicit ownerships, and the price-formation process. Their use of computational learning provides subtle insights which have eluded conventional approaches. The LBS group was the first to do this, and the approach is now widely applied. Relevance of the work is recognised via funding from major energy companies and research organisations. In terms of external impact, this work has informed extensive advice to several government inquiries, stimulated further research, and is actively used by commericial businesses.
Research within the School's Centre for Research on Globalisation and Economic Policy (GEP) on the characteristics of UK exporting and non-exporting firms has been used by the UK's trade promotion agencies, UK Trade and Investment (UKTI) and the Department of Business, Innovation and Skills (BIS) to improve the design and effectiveness of the firm-specific policies they use to increase export performance.
The research has been used to provide an evidence base against which to judge the rationale for and effectiveness of export promotion and to develop new schemes. The research has led to a better understanding of the different types of barriers to exporting faced by different types of UK firms, and the role of previous export experience in lowering these barriers. This evidence base has both informed the design of the UK's export policy and has helped to fashion a specific, new trade promotion scheme (Gateways to Global Growth) launched by the UK in 2009.