upward pricing pressure in two sided markets measuring upward pricing pressure upp has recently been proposed by farrell and shapiro 2010 as an alternative screening device for horizontal mergers we extend the concept of upp to two sided markets examples of such markets are the newspaper market where the demand for advertising is related to the number of readers and the market for online search where advertising demand depends on the number of users the formulae we derive depend on four sets of diversion ratios that can either be estimated using market level demand data or elicited in surveys in an application we show that it is important to take the two sidedness of the market into account when evaluating upp

price coherence and excessive intermediation suppose an intermediary provides a benefit to buyers when they purchase from sellers using the intermediary s technology we develop a model to show that the intermediary would want to restrict sellers from charging buyers more for transactions it intermediates with this restriction an intermediary can profitably raise demand for its services by eliminating any extra price buyers face for purchasing through the intermediary we show that this leads to inflated retail prices excessive adoption of the intermediaries services over investment in benefits to buyers and a reduction in consumer surplus and sometimes welfare competition among intermediaries intensifies these problems by increasing the magnitude of their effects and broadening the circumstances in which they arise we discuss applications to payment card systems travel reservation systems rebate services and various other intermediaries jel codes d40 l11 l14 l42

club good intermediaries abstract the emergence and ubiquitous presence in everyday life of digital goods such as songs movies and e books give renewed salience to the problem of providing public goods with exclusion because digital goods are typically traded via intermediaries like itunes amazon and netflix the question arises as to the optimal pricing mechanism for such club good intermediaries we derive the direct bayesian optimal mechanism for allocating club goods when the mechanism designer is an intermediary that neither produces nor consumes the goods and we develop an indirect mechanism that implements this mechanism we also derive sufficient conditions for the intermediary optimal mechanism to be implementable with revenue sharing contracts which are widely used in e business

negative intra group externalities in two sided markets two types of agents interact on a pre existing free platform agents value positively the presence of agents of the other type but may value negatively the presence of agents of their own type we ask whether a new platform can find fees and subsidies so as to divert agents from the existing platform and make a profit we show that this might be impossible if intra group negative externalities are sufficiently but not too strong with respect to positive inter group externalities

platform competition in two sided markets many if not most markets with network externalities are two sided to succeed platforms in industries such as software portals and media payment systems and the internet must get both sides of the market on board accordingly platforms devote much attention to their business model that is to how they court each side while making money overall this paper builds a model of platform competition with two sided markets it unveils the determinants of price allocation and end user surplus for different governance structures profit maximizing platforms and not for profit joint undertakings and compares the outcomes with those under an integrated monopolist and a ramsey planner jel l5 l82 l86 l96

shared atm networks and banking competition abstract in this paper we study the incentives of banks to share their automatic teller machines atms when they are competitors in the market for deposits we construct a stylized model of banking competition which emphasises the distinctive features of atm compatibility we find that in equilibrium either a strict subset of banks share their atms or total incompatibility prevails we also derive the implications for atm compatibility of withdrawal fees interchange bank fees entry and depositor switching costs finally we investigate the normative implications of our model and draw some policy conclusions

consumers use of debit cards patterns preferences and price response debit card use at the point of sale has grown dramatically in recent years in the united states and now exceeds the number of credit card transactions however many questions remain regarding patterns of debit card use consumer preferences when using debit and how consumers might respond to explicit pricing of card transactions using a new nationally representative consumer survey this paper describes the current use of debit cards by u s consumers including how demographics affect use in addition consumers stated reasons for using debit cards are used to analyze how consumers substitute between debit and other payment instruments we also examine the relationship between household financial conditions and payment choice finally we use a key variable on bank imposed transaction fees to analyze price sensitivity of card use and find a 12 decline in overall use in reaction to a mean 1 8 fee charged on certain debit card transactions we believe this represents the first microeconomic evidence in the united states on price sensitivity for a card payment at the point of sale

optimal pricing of payment services abstract payments are increasingly being made with payment cards despite the fact that the cost of clearing a card payment usually exceeds the cost of transferring cash we examine this puzzle through the lens of monetary theory we consider the design of an optimal card based payment system when cash is available as an alternative means of payment we find that a feature akin to the controversial no surcharge rule may be necessary to ensure the viability of the card payment system this rule states that merchants cannot charge a customer who pays by card more than a customer who pays by cash

two sided market r d and payments system evolution abstract it takes many years for more efficient electronic payments to be widely used and the fees that merchants consumers pay for using those services are increasing decreasing over time we address these puzzles by studying payments system evolution with a dynamic model in a two sided market setting we calibrate the model to u s payment card data and conduct welfare and policy analysis our analysis shows that the market power of electronic payment networks plays important roles in explaining the slow adoption and asymmetric price changes and the welfare impact of regulations may vary significantly through the endogenous r d channel

cooperation among competitors a comparison of cost sharing mechanisms abstract in this paper we investigate the consequences of using outcome based versus ex ante based cost sharing mechanisms in terms of competing firms profitability and total welfare we consider two firms making a joint expenditure which can positively affect firms demand and or unit operating costs while competing in the final market by setting either price or quantity we compare two outcome based cost sharing mechanisms i e quantity proportional qp and total margin proportional tm with the more competitive fixed share fs mechanism where cost sharing is set up on an ex ante basis we show that outcome based mechanisms and even a fully collusive behavior induced by the optimal cost sharing mechanism might actually enhance total welfare as compared with the more competitive fs mechanism we also find that although the fs mechanism is never more preferable than the tm mechanism it can lead to higher profits than the qp mechanism when competition is mild these results can support firms cooperating with competitors in the choice of the cost sharing mechanism as well as provide important implications to policy makers

distress rentals and the land rental market as a safety net contract choice evidence from tigray ethiopia rural households in the semiarid northern ethiopian highlands are net buyers of food crop failure due to erratic and unpredictable rainfall occurs frequently and leads to food shortages and income shocks the renting out of land may be one of the coping responses of households exposed to shocks we developed a theoretical household model for poor landlord households capturing their contract choice response to downside production shocks we tested econometrically whether contract choice may depend on poverty capital constraints production risk and random shocks the multinomial logit model estimates show that poor households experiencing random shocks are more likely to choose fixed rent contracts as a distress response to shocks suggesting that fixed rent contracts may be used to meet immediate needs but at the expense of future incomes we also found that fixed rent contracts are preferred when ex ante production risk is low while sharecropping is more likely where production risk is high finally we found an indication that the choice of a fixed rent contract as a coping response to shocks comes as a last resort after all other means of coping are exhausted

regulate one service tame the entire market credit cards in turkey abstract in credit card markets banks provide both payment and credit services two regulations were recently enacted in the turkish credit card market one on payment services in 2005 and the other on credit services in 2006 by employing the well known panzar and rosse 1982 panzar and rosse 1987 method and a unique quarterly data set for 21 turkish banks between 2002 and 2008 we investigate the extent of banks market power in the turkish credit card market before and after the regulations unlike most of the existing literature which considers competition and regulation for either credit or payment services and ignores the externalities between them we consider the entire market by taking both services into account fixed effects estimations reveal that banks enjoyed collusive oligopoly power before the regulations although the first regulation did not have much impact the second led to rises in both banks total revenues and competition in the entire market

why do shoppers use cash evidence from shopping diary data des etudes recentes montrent que l argent comptant demeure un mode de paiement privilegie pour les transactions de faible montant malgre la prevalence d autres moyens de paiement comme les cartes de debit et de credit pour les decideurs publics il importe de savoir si les consommateurs preferent vraiment regler en especes ou plutot si les commercants restreignent l usage de ces cartes

cooperation among competitors some economics of payment card associations we analyze platforms in two sided markets with network externalities using the specific context of a payment card association we study the cooperative determination of the interchange fee by member banks the interchange fee is the access charge paid by the merchants banks the acquirers to cardholders banks the issuers we develop a framework in which banks and merchants may have market power and consumers and merchants decide rationally on whether to buy or accept a payment card after drawing the welfare implications of a cooperative determination of the interchange fee we describe in detail the factors affecting merchant resistance compare cooperative and for profit business models and make a first cut in the analysis of system competition

missed sales and the pricing of ancillary goods firms often sell a basic good as well as ancillary ones hold up concerns have led to ancillary good regulations such as transparency and price caps the hold up narrative however runs counter to evidence in many retail settings where ancillary good prices are set below cost e g free shipping or limited card surcharging in countries where the no surcharge rule was lifted we argue that the key to unifying these conflicting narratives is that the seller may absorb partly or fully the ancillary good s cost so as not to miss sales on the basic good a supplier with market power on the ancillary good market then takes advantage of cost absorption and jacks up its wholesale price hold ups occur only when consumers are initially uninformed or naive about the drip price and shopping costs are high the price of the basic good then acts as a signal of the drip price since a high markup on the basic good makes the firm more wary of missed sales regardless of whether consumers are informed uninformed but rational or naive mandating price transparency and banning loss making on the ancillary good leads to i an efficient consumption of the ancillary good and ii a reduction of its wholesale price generating strict welfare gains

explaining adoption and use of payment instruments by u s consumers this paper develops and estimates a structural model of adoption and usage of payment instruments by u s consumers we utilize a cross section from the survey of consumer payment choice a new survey of consumer behavior our empirical model combines the elements of a discrete continuous model where rst a consumer picks a product and then chooses how much to use it with a bundled choice model in which consumers can choose multiple products that may aect the utility derived from each other we consider how changes in the costs of adoption and usage may dierentially aect substitution patterns these results are particularly relevant for bank pricing of debit card services in response to the regulation of interchange fees on debit cards enacted by the durbin amendment to the dodd frank act which became eective on

two sided markets a progress report the paper provides a road map to the burgeoning literature on two sided markets and presents new results it identifies two sided markets with markets in which the structure and not only the level of prices charged by platforms matters the failure of the coase theorem is necessary but not sufficient for two sidedness the paper builds a model integrating usage and membership externalities that unifies two hitherto disparate strands of the literature emphasizing either form of externality and obtains new results on the mix of membership and usage charges when price setting or bargaining determine payments between end users

market making oligopoly this paper analyzes price competition between market makers who set costly capacity constraints before they intermediate between producers and consumers the unique equilibrium outcome with pure strategies at the capacity stage is the cournot outcome the paper thus provides a rationale for cournot type competition between market makers this contrasts with previous findings in the literature where due to the absence of capacity constraints that are set ex ante the bertrand result typically obtains

the failure of competition in the credit card market the bank credit card market containing 4 000 firms and lacking regulatory barriers casually appears to be a hospitable environment for the model of perfect competition nevertheless this article reports that credit card interest rates have been exceptionally sticky relative to the cost of funds moreover major credit card issuers have persistently earned from three to five times the ordinary rate of return in banking during the periods 1983 88 the failure of the competitive model appears to be partly attributable to consumers making credit card choices without taking account of the very high probability that they will pay interest on their outstanding balances copyright 1991 by american economic association

market failures and public policy industrial organization studies the exercise and control of market power to this purpose it builds models that capture the essence of the situation the predictions of the model can then be tested econometrically and possibly in the lab or the field in the end the reasonableness of and robustness to modeling assumptions and the quality of empirical fit determine how confident economists are in making recommendations to public decision makers for intervention and to companies for the design of their business model industrial organization has a long tradition first theoretical with the work of french engineer economists antoine augustin cournot 1838 and jules dupuit 1844 then policy oriented with the enactment of the sherman act 1890 and subsequent legislation then descriptive with the studies of the harvard school structure conduct performance comforting and refining the antitrust drive and finally skeptical with the chicago school the chicago school correctly pointed out the lack of underlying theoretical doctrine and went on to cast doubt on the whole edifice it however did not develop an alternative antitrust doctrine perhaps because

interchange fees in payment card systems a survey of the literature abstract this paper surveys the recent literature about interchange fees in payment card systems interchange fees are used by payment platforms to allocate the total cost of a payment card transaction between the cardholder s bank the issuer and the merchant s bank the acquirer each time a consumer pays by card its bank receives an interchange fee from the merchants bank banks argue that interchange fees are needed to encourage the use of electronic payment instruments whereas merchants claim that they artificially inflate the cost of accepting cards this paper sheds light on the ongoing debate that opposes banks to the regulatory institutions or the competition authorities in various countries by reviewing the theoretical results of the literature and highlighting some unanswered issues

incentives at the counter an empirical analysis of surcharging card payments and payment behaviour in the netherlands in card payment systems no surcharge rules prohibit merchants from charging consumers extra for card payments however such rules are prohibited in the netherlands dutch retailers are allowed to surcharge consumers for debit card use this setting permits an empirical analysis of the impact of surcharging card payments on merchant acceptance and consumer payment choice based on consumer and retailer survey data our analysis shows that surcharging steers consumers away from using debit cards towards cash half of the observed difference in debit card payment shares across retailers can be explained by this surcharge effect removing debit card surcharges may induce cost savings of more than eur 50 million in the long run

a portfolio approach to the optimal funding of pensions abstract fully funded pension systems are advocated for their higher rate of return but this return is typically risky using a simple mean variance model we find that mixed funded unfunded systems are desirable in this setting because they enable risk diversification