An analysis on the network access pricing rules

Mémoire numérisé par la Division de la gestion de documents et des archives de l'Université de Montréal

Transfer pricing rules and competing governments

The literature on the regulation of multinationals' transfer prices has not considered the possibility that governments may use transfer pricing rules strategically when they compete with other governments. The present paper analyses this case and shows that, even in the absence of agency considerations, a non‐cooperative equilibrium is characterised by above‐optimal levels of effective taxation. We then derive conditions under which harmonization of transfer pricing rules lead to a Pareto improvement, and show that harmonization according to the ‘arm's length’ principle—the form of harmonization advocated by the OECD—may not be Pareto improving.

Are one-sided S,s rules useful proxies for optimal pricing rules?

This article is motivated by the prominence of one-sided S,s rules in the literature and by the unrealistic strict conditions necessary for their optimality. It aims to assess whether one-sided pricing rules could be an adequate individual rule for macroeconomic models, despite its suboptimality. It aims to answer two questions. First, since agents are not fully rational, is it plausible that they use such a non-optimal rule? Second, even if the agents adopt optimal rules, is the economist committing a serious mistake by assuming that agents use one-sided Ss rules? Using parameters based on real economy data, we found that since the additional cost involved in adopting the simpler rule is relatively small, it is plausible that one-sided rules are used in practice. We also found that suboptimal one-sided rules and optimal two-sided rules are in practice similar, since one of the bounds is not reached very often. We concluded that the macroeconomic effects when one-sided rules are suboptimal are similar to the results obtained under two-sided optimal rules, when they are close to each other. However, this is true only when one-sided rules are used in the context where they are not optimal.

Conflict resolution through negotiation in a railway open access market : a multi-agent system approach

Open access reforms to railway regulations allow multiple train operators to provide rail services on a common infrastructure. As railway operations are now independently managed by different stakeholders, conflicts in operations may arise, and there have been attempts to derive an effective access charge regime so that these conflicts may be resolved. One approach is by direct negotiation between the infrastructure manager and the train service providers. Despite the substantial literature on the topic, few consider the benefits of employing computer simulation as an evaluation tool for railway operational activities such as access pricing. This article proposes a multi-agent system (MAS) framework for the railway open market and demonstrates its feasibility by modelling the negotiation between an infrastructure provider and a train service operator. Empirical results show that the model is capable of resolving operational conflicts according to market demand.

The taxing effects of the advance pricing arrangement program: A review of APAs and their impact on stakeholders

The current transfer pricing rules contained in Australia’s taxation regime are designed to counter the underpayment of tax by businesses engaged in international related-party dealings. Currently, these transactions must take place at an arm’s length price, a requirement which is becoming increasingly difficult to demonstrate. This results in an increased risk of an audit by the Australian Taxation Office. If a taxpayer wishes to avoid the risk of an audit, and any ensuing penalties, there is one option: an advance pricing arrangement (‘APA’). An APA is an agreement whereby the future transfer pricing methodology to be used to determine the arm’s length price is agreed to by the taxpayer and the relevant tax authority or authorities. This article investigates the use of APAs as a solution to the problem of transfer pricing and considers their impact on stakeholders. It is argued that while APAs provide a valuable practical tool for multinational entities facing the challenges of the taxation of global trading under the current regime, they may not be a practical long term solution.

Advance pricing arrangements : an Australian Tax Office success or a legislative failure?

Australia’s domestic income tax legislation and double tax agreements contain transfer pricing rules which are designed to counter the underpayment of tax by businesses engaged in international dealings between related parties. The current legislation and agreements require that related party transactions take place at a value which reflects an arm’s length price, that is, a price which would be charged between unrelated parties. For a host of reasons, it is increasingly difficult for multinational entities to demonstrate that they are transferring goods and services at a price which is reflective of the behaviour of independent parties, thereby making it difficult to demonstrate compliance with the relevant legislation. Further, where an Australian business undertakes cross-border related party transactions there is the risk of an audit by the Australian Tax Office (ATO). If a business wishes to avoid the risk of an audit, and any ensuing penalties, there is one option: an advance pricing arrangement (APA). An APA is an agreement whereby the future transfer pricing methodology to be used to determine the arm’s length price is agreed to by the taxpayer and the relevant tax authority or authorities. The ATO views the APA process as an important part of its international tax strategy and believes that there are complementary benefits provided to both the taxpayer and the ATO. The ATO promotes the APA process on the basis of creating greater certainty for all parties while reducing compliance costs and the risk of audit and penalty. While the ATO regards the APA system as a success, it may be argued that the implementation of such a system is simply a practical solution to an ongoing problem of an inherent failure in both the legislation and ATO interpretation and application of this legislation to provide certainty to the taxpayer. This paper investigates the use of APAs as a solution to the problem of transfer pricing and considers whether they are the success the ATO claims. It is argued that there is no doubt that APAs provide a valuable practical tool for multinational entities facing the challenges of the taxation of global trading under the current transfer pricing regime. It does not, however, provide a long term solution. Rather, the long term solution may be in the form of legislative amendment.

Market access and welfare: Is there a conflict?

Well known tariff reform rules that are guaranteed to increase welfare will not necessarily increase market access, while rules that are guaranteed to increase market access will not necessarily increase welfare. The present paper proposes a new set of tariff reforms that can achieve both objectives at the same time.

The new economy: Essays in network economics and two-sided markets

Following the Introduction, which surveys existing literature on the technology advances and regulation in telecommunications and on two-sided markets, we address specific issues on the industries of the New Economy, featured by the existence of network effects. We seek to explore how each one of these industries work, identify potential market failures and find new solutions at the economic regulation level promoting social welfare. In Chapter 1 we analyze a regulatory issue on access prices and investments in the telecommunications market. The existing literature on access prices and investment has pointed out that networks underinvest under a regime of mandatory access provision with a fixed access price per end-user. We propose a new access pricing rule, the indexation approach, i.e., the access price, per end-user, that network i pays to network j is function of the investment levels set by both networks. We show that the indexation can enhance economic efficiency beyond what is achieved with a fixed access price. In particular, access price indexation can simultaneously induce lower retail prices and higher investment and social welfare as compared to a fixed access pricing or a regulatory holidays regime. Furthermore, we provide sufficient conditions under which the indexation can implement the socially optimal investment or the Ramsey solution, which would be impossible to obtain under fixed access pricing. Our results contradict the notion that investment efficiency must be sacrificed for gains in pricing efficiency. In Chapter 2 we investigate the effect of regulations that limit advertising airtime on advertising quality and on social welfare. We show, first, that advertising time regulation may reduce the average quality of advertising broadcast on TV networks. Second, an advertising cap may reduce media platforms and firms' profits, while the net effect on viewers (subscribers) welfare is ambiguous because the ad quality reduction resulting from a regulatory cap o¤sets the subscribers direct gain from watching fewer ads. We find that if subscribers are sufficiently sensitive to ad quality, i.e., the ad quality reduction outweighs the direct effect of the cap, a cap may reduce social welfare. The welfare results suggest that a regulatory authority that is trying to increase welfare via regulation of the volume of advertising on TV might necessitate to also regulate advertising quality or, if regulating quality proves impractical, take the effect of advertising quality into consideration. 3 In Chapter 3 we investigate the rules that govern Electronic Payment Networks (EPNs). In EPNs the No-Surcharge Rule (NSR) requires that merchants charge at most the same amount for a payment card transaction as for cash. In this chapter, we analyze a three- party model (consumers, merchants, and a proprietary EPN) with endogenous transaction volumes and heterogenous merchants' transactional benefits of accepting cards to assess the welfare impacts of the NSR. We show that, if merchants are local monopolists and the network externalities from merchants to cardholders are sufficiently strong, with the exception of the EPN, all agents will be worse o¤ with the NSR, and therefore the NSR is socially undesirable. The positive role of the NSR in terms of improvement of retail price efficiency for cardholders is also highlighted.

Endogenous time-dependent rules and inflation inertia: preliminary version

When policy rules are changed, the effect of nominal rigidities should be modelled through endogenous pricing rules. We endogenize Taylor (1979) type pricing rule to examine the output effects of monetary disinflations. We derive optimal fixed-price time-dependent rules in inflationary steady states and during disinflations. We also develop a methodology to aggregate individual pricing rules which vary through disinflation. This allows us to reevaluate the output costs of monetary disinflation, including aspects as the role of the initial leveI of inflation and the importance of the degree of credibility of the policy change.

Endogenous time-dependent rules and the costs of disinflation with imperfect credibility

This paper examines the output effects of monetary disinflation in a model with endogenous time-dependent pricing rules and imperfect credibility of the disinflation policy. We find that these features interact to generate an additional effect on top f the ones obtained with either endogenous time-dependent rules (Bonomo and Carvalho, 2003) or imperfect credibility (Ball, 1995) in isolation. This results in higher output costs of monetary disinflation.