Nuclear in the UK’s energy mix? The core question

Choosing the right energy mix is a hot topic for many countries around the world. In the UK, for example, the government appears committed to supporting new nuclear capacity; however, sceptics point to the declining cost of renewables as a reason why this commitment may be misplaced. What is the economic case for new nuclear capacity, given the objectives of security of supply, affordability, and decarbonisation?

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A promise of protection: a behavioural experiment into pension decisions

How does the presence of consumer protection affect decisions at retirement? Oxera undertook a behavioural experiment for the UK Financial Services Compensation Scheme (FSCS) to understand the role of FSCS protection—in both how consumers select their retirement income products, and whether they choose to obtain financial advice. This revealed how people behave in a realistic environment, providing insight into actual consumer behaviour and the importance of the FSCS in their decision-making

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Shrinkflation! A bite missing?

While the price of a Toblerone bar has not changed in recent years, its size has—between 2009 and 2010, a standard bar became 30g lighter (from 200g to 170g), and by 2016 it had shrunk to 150g. What factors lead a firm to pass on a cost shock by changing the size of a product rather than its price? And what effect does this have on consumers and inflation statistics?

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Green signal for the Northern rail franchise: assessing mergers in passenger rail

The UK Competition and Markets Authority (CMA) has completed its first in-depth (Phase 2) rail franchise case in over ten years—one of the largest it has ever dealt with. The investigation into the award of the Northern rail franchise to Arriva examined more than 1,000 local overlaps between Arriva’s bus services and Northern’s rail services, and over 150 rail–rail overlaps. Ultimately remedies were required on only three overlaps. What are the main insights?

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Financial resilience: demonstrating long-term viability for utilities

Company failure can impose costs on customers as well as society more broadly. To mitigate this, regulators have in recent years subjected companies’ business models to increased scrutiny to enable a broader set of stakeholders to assess risks to financial viability. Stress-testing has been embedded in the banking sector and is increasingly being used elsewhere—such as in the UK water sector

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Not mutually exclusive? Assessing competition impacts in an appraisal framework

Textbook economics tells us that competition has benefits for users—lower prices, better quality of service, and greater quantity of output. However, economic appraisals are often silent on the impact of assessed policies or projects on market competition and outcomes. How can the effects of changes in market structure and the level of competition be assessed in appraisals in the transport sector?

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Helping to analyse consumer decisions: Deaton’s AIDS model in market analysis

On 12 October 2015, Angus Deaton was awarded the Nobel Prize in Economic Sciences ‘for his analysis of consumption, poverty and welfare’. Deaton’s unique contribution lies in his argument that welfare-promoting, poverty-reducing economic policy must begin with individual consumption choices. His Almost Ideal Demand System (AIDS) model, which monitors aggregated consumer behaviour to assess market demand, has influenced both academia and policymakers

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The ‘damage to the economy’ test under French competition law: opportunity or burden?

The French competition authority, Autorité de la Concurrence, has published a study (‘the Study’) about a requirement in French competition law for the effects of an anticompetitive practice to be taken into account in the determination of fines. This legal provision differs from European competition law, as it promotes an effects-based approach to fines. The requirement could be a useful tool for ensuring that punishments are proportionate, but is the Authority making the most of it?

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Piping down? Gassled tariff reductions and the price of regulatory risk

In June 2013, the Norwegian Ministry of Petroleum and Energy (MPE) reduced the tariffs for access to Gassled’s offshore gas transport infrastructure located primarily on the Norwegian continental shelf (NCS). As in other cases where similar actions have been implemented, there is often a price to pay for greater regulatory risk. What are the implications of the MPE’s tariff decision, upheld by the Oslo District Court, for future investment on the NCS?

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Turning down the volume: estimating cost of capital in the presence of noise

Equity beta is a key input in cost of capital determination. As estimates of beta can be significantly influenced by ‘noise’ in the data, sophisticated ways of dealing with this are valuable in areas such as regulation and litigation. This article outlines an effective beta estimation technique for such data, and also looks at more generalised techniques, such as the Kalman filter, that can be applied in such situations

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A beautiful mind: the Nash legacy

John Nash, who died last month, changed the world of academia forever. His work in theoretical mathematics, bargaining theory and development of the Nash equilibrium has had a huge impact on a wide range of fields, including political science, international relations, philosophy and economics. Practitioners such as Oxera owe Nash a huge debt. Many of the theories about how firms interact, and how markets work, come directly from his work on game theory

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