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Department of Economics
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Research Findings Seminar on "Essays on Market Competition and Law Enforcement"

Speaker Mr. WANG Yanchen (PhD Student)
Date 16 April 2018 (Monday)
Time 3:15 – 4:00 pm
Venue WYL314, Dorothy Y. L. Wong Building
Chief Supervisor Prof. Ping LIN (Professor)
Co-supervisor Prof. Thomas J. VOON (Associate Professor)

Abstract

My Ph.D. dissertation contains both theoretical and empirical studies on market competition and law enforcement. The first study, entitled “Piracy and Market Competition”, is a theoretical study and investigates how the penalty for intellectual property infringement affects market competition. We start with a static model made up of two horizontally and vertically differentiated goods, genuine good and pirated good. The representative consumer's utility is a function of the consumption of the two goods. The consumer can choose to buy one out of the two differentiated goods but faces a potential penalty if he purchases the pirated good. And the penalty is exogenous and decided by the social planner. Taking both Bertrand and Cournot competitions into considerations, we examine how the penalty and the level of law enforcement affect equilibrium price, quantity, sale, and profit for genuine-good supplier and piratedgood supplier respectively, as well as consumer welfare. We also show that the market power of the genuine product producer increases as the level of law enforcement enhances. The second study, entitled “The Volcker Rule and Bank Stability”, is an empirical study and focuses on the latest bank regulation, the Dodd-Frank Wall Street Reform and Consumer Protection Act. Specifically, we focus on section 619 of Dodd-Frank Act, which is commonly known as “Volcker Rule” and imposes restrictions on banks’ ability to engage in proprietary trading activities. Using the passage of Volcker Rule as an exogenous shock, we employ the difference-in-differences methodology to investigate the effect of Volcker Rule on bank stability. We confirm that limitation on proprietary trading decreases the level of risk-taking for regulated bank holding companies (BHCs). However, we find that Volcker Rule triggers unintended consequence of a noticeable drop in liquidity creation off the balance sheet. This may adversel​y affect some financial services provided by BHCs, such as loan commitments and letters of credit.