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We propose a distinction between active and passive waste as determinants of the cost of public services. Active waste entails utility for the public decision maker, whereas passive waste does not. We analyze purchases of standardized goods by Italian public bodies and exploit a policy experiment associated with a national procurement agency. We find that: (i) some public bodies pay systematically more than others for equivalent goods; (ii) differences are correlated with governance structure; (iii) the variation in prices is principally due to variation in passive rather than active waste; and (iv) passive waste accounts for 83 percent of total estimated waste. (JEL H11, H57, H83)

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We investigate the effects of price discrimination on prices, profits, and consumer surplus when (a) at least one competing firm can use consumers' private information to price discriminate yet (b) consumers can prevent such use by paying a "privacy cost". Unlike a monopolist, competing duopolists do not always benefit from a higher privacy cost because each firm's profit decreases-and consumer surplus increases-with that cost. Under such competition, the optimal strategy for an owner of consumer data is selling to only one firm, thereby maximizing the stakes for rival buyers. The resulting inefficiencies imply that policy makers should devote more attention to discouraging exclusivity deals and less to ensuring that consumers can easily protect their privacy.20 Under indifference, consumers buy from the informed firm (which we are assuming is firm A).

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We empirically study the effects of broadband internet diffusion on local election outcomes and on local government policies using rich data from the U.K. Our analysis shows that the internet has displaced other media with greater news content (i.e. radio and newspapers), thereby decreasing voter turnout, most notably among less-educated and younger individuals. In turn, we find suggestive evidence that local government expenditures and taxes are lower in areas with greater broadband diffusion, particularly expenditures targeted at less-educated voters. Our findings are consistent with the idea that voters’ information plays a key role in determining electoral participation, government policies, and government size.

We set up a stylized oligopoly model of uncertain product innovation to analyze the effects of a merger on innovation incentives and on consumer surplus. The model incorporates two competitive channels for merger effects: the "price coordination" channel and the internalization of the "innovation externality". We solve the model numerically and find that price coordination between the two products of the merged firm tends to stimulate innovation, while internalization of the innovation externality depresses it. The latter effect is stronger in our simulations and, as a result, the merger leads to lower innovation incentives for the merged entity, absent cost efficiencies and knowledge spillovers. In our numerical analysis both overall innovation and consumer welfare fall after a merger.

This paper examines the impact of regulatory intervention to cut termination rates of calls from fixed lines to mobile phones. Under quite general conditions of competition, theory suggests that lower termination charges will result in higher prices for mobile subscribers, a phenomenon known as the "waterbed" effect. The waterbed effect has long been hypothesized as a feature of many two-sided markets and especially the mobile telephony industry. Using a uniquely constructed panel of mobile operators' prices and profit margins across more than twenty countries over six years, we document empirically the existence and magnitude of this effect. Our results suggest that although regulation reduced termination rates by about 10%, this also led to a 5% increase in mobile retail prices. We also provide evidence that both competition and market saturation, and most importantly their interaction, affect the overall impact of the waterbed effect on prices. 1 We would like to thank the editor, three anonymous referees, Steffen Hoernig, Tobias Kretschmer, Marco Manacorda, Elias Papaioannou, Jonathan Sandbach, Jean Tirole, Francesc Trillas, John Van Reenen, Julian Wright, and seminar audiences in Barcelona, Berlin, Brussels (Bruegel/IDEI conference), London, Mannheim, Rome, Paris, Tarragona (8 th CEPR Empirical IO meeting), Turin, Valencia (EARIE) for helpful comments and discussions. We are also grateful to Bruno Basalisco for research assistance. We acknowledge research funding from Vodafone. The opinions expressed in this paper and all remaining errors are those of the authors alone.