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

bidding behaviour in multi unit auctions an experimental investigation we present laboratory experiments of five different multi unit auction mechanisms two units of a homogeneous object were auctioned off among two bidders with flat demand for two units we test whether expected demand reduction occurs in open and sealed bid uniform price auctions we also test revenue equivalence for these auctions as well as for the ausubel the vickrey and the discrim inatory sealed bid auction furthermore we compare the five mechanisms with respect to the efficient allocation of the units auctions play a more and more important role in everyday business life an increasing number of important markets are organised as auctions and auction design is probably one of the most successful applications of economic theory to practice among the prominent examples are the spectrum auctions in the us and in europe treasury auctions in the us the design of electricity spot markets oil and timber sales as well as the massive use of procurement auctions both by the public sector and by private firms the spectrum auctions across the world have demonstrated that carefully designed auctions raise high revenues and often succeed in implementing efficient allocations

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

revenue and efficiency in multi unit uniform price auctions abstract this paper analyzes efficiency in a uniform price multi unit auction with a positive reservation price i demonstrate that the reservation price is an important policy tool that may increase efficiency or welfare in multi unit uniform price auctions i show that the higher the reservation price is the higher is the seller s revenue and the higher is the efficiency of a final allocation of units that could be attained in a multi unit uniform price auction the reservation price increases the bidder s equilibrium strategy in a specific way that is inherent to the uniform price auction thus the reservation price effect on efficiency is in contrast to other auction formats e g the reservation price decreases efficiency in the vickrey auction and single unit auctions with symmetric bidders therefore the main result can be added to the list of results from mechanism design and auction theory that fail to extend the single unit single dimensional context to the multi unit multi dimensional one

multi unit pay your bid auctions with variable awards abstract multi unit auctions in which bidders can win a variable number of units differ significantly from multi unit auctions in which bidders can only win one unit in an independent private values pay your bid auction where bidders may win up to two units we show that first order conditions imply separating and pooling of bids must both occur with positive probability this behavior is not found in multi unit uniform price auctions it also contrasts with asymmetric first price auctions of a single good whose first order conditions are superficially similar a uniform distribution example is analyzed numerically journal of economic literature classification numbers d44 d82 c72

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

auctions an introduction abstract this is a detailed introduction to auction theory it begins with a simple analysis of standard auctions and then uses a strikingly simple general solution of symmetric private values auctions to prove the payoff equivalence of many auction rules the basic framework is then modified to admit risk aversion multi unit and repeated auctions as well as collusion then follows an introduction to optimal auctions with and without stochastic entry and to common value auctions and the winner s curse problem the survey closes with a sample of applications from the regulation of natural monopolies to price competition in oligopoly and the government securities market

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

multiunit pay your bid auction with one dimensional multiunit demands an arbitrary number of units of a good is sold to two bidders through a discriminatory auction the bidders are homogeneous ex ante and their demand functions are two step functions that depend on a single parameter we characterize the symmetric bayesian equilibrium and prove its existence and uniqueness we compare this equilibrium with the equilibrium of the multiunit vickrey auction and with the equilibria of the single unit first price and second price auctions we examine the consequences of bundling all units into one package we study the impacts that variations of the relative supply have on the equilibrium on the bidders average payoffs per unit and on the efficiency of the equilibrium allocation

numerical analysis of asymmetric first price auctions abstract we propose numerical algorithms for solving first price auction problems where bidders draw independent valuations from heterogeneous distributions the heterogeneity analyzed in this work is what might naturally emerge when subsets of distributionally homogeneous bidders collude bid functions and expected revenues are calculated for two special cases extensions to more general asymmetric first price auctions are discussed journal of economic literature classification numbers d44 c63 c72 d82

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

comparative statics in first price auctions abstract two bidders take part in a first price auction we show that if a bidder s valuation distribution increases stochastically so will his bid distribution for every possible valuation his opponent will bid higher and the change is beneficial to the auctioneer we generalize our results to the asymmetric setting with n bidders and no more than two different valuation distributions journal of economic literature classification number d44

an efficient ascending bid auction for multiple objects when bidders exhibit multi unit demands standard auction methods generally yield inefficient outcomes this article proposes a new ascending bid auction for homogeneous goods such as treasury bills or telecommunications spectrum the auctioneer announces a price and bidders respond with quantities items are awarded at the current price whenever they are clinched and the price is incremented until the market clears with private values this dynamic auction yields the same outcome as the sealed bid vickrey auction but has advantages of simplicity and privacy preservation with interdependent values this auction may retain efficiency whereas the vickrey auction suffers from a generalized winner s curse

equilibrium in sealed high bid auctions there is a voluminous theoretical literature on sealed high bid auctions auctions in which bids are sealed and the high bidder pays his bid see for example vickrey 1961 myerson 1981 riley and samuelson 1981 milgrom and weber 1982 matthews 1983 maskin and riley 1984 holt 1980 cox smith and walker 1988 a critical property on which this literature relies is the existence of equilibrium in which buyers bidding strategies are monotonic in their types this enables the analyst to perform comparative statics as the distribution of types changes and to compare the welfare properties of the high bid auction with those of other auction institutions one case in which the existence of monotonic equilibrium is readily established is that in which buyers types are distributed smoothly independently and symmetrically in this case there exists a symmetric equilibrium one in which all bidders share the same bidding behaviour as a function of their valuations and this bid function is the solution to a first order differential equation

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

asymptotic efficiency for discriminatory private value auctions we consider discriminatory auctions for multiple identical units of a good players have private values possibly for multiple units none of the usual assumptions about symmetry of players distributions over values or symmetry of equilibrium play are made because of this equilibria will typically involve inefficient allocations equilibria also become very difficult to solve for using an approach which does not depend on explicit equilibrium calculations we show that such auctions become arbitrarily close to efficient as the number of players and possibly the number of objects grows large and provide a simple characterization of limit equilibria

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

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

learning and shifts in long run productivity growth abstract an extensive literature has analyzed the macroeconomic effects of shocks to the level of aggregate productivity however there has been little corresponding research on sustained shifts in the growth rate of productivity in this paper we examine the effects of shocks to productivity growth in a dynamic general equilibrium model where agents do not directly observe whether shocks are transitory or persistent we show that an estimated kalman filter model using real time data describes economists long run productivity growth forecasts in the united states extremely well and that filtering has profound implications for the macroeconomic effects of shifts in productivity growth

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

a two stage sequential auction with multi unit demands abstract working within the independent private values paradigm i examine a sequence of two second price auctions where individual bidders have diminishing marginal valuations equilibria are characterized for complete and incomplete informational settings when information is complete allocations can be inefficient and price sequences are constant or decreasing however when information is incomplete and symmetric equilibrium behavior produces efficient outcomes and an expectation of increasing prices these divergent findings are reconciled using an argument based on ex ante bidder asymmetry that can also explain the declining price anomaly finally comparisons to other auctions are made in terms efficiency and revenue generation journal of economic literatureclassification number d44

first price auctions in the asymmetric n bidder case i consider the first price auction when the bidders valuations may be differently distributed i show that every bayesian equilibrium is an essentially pure equilibrium formed by bid functions whose inverses are solutions of a system of differential equations with boundary conditions i then prove the existence of an equilibrium i prove its uniqueness when the valuation distributions have a mass point at the lower extremity of the support i give sufficient conditions for uniqueness when every valuation distribution is one of two atomless distributions i establish inequalities between equilibrium strategies when relations of stochastic dominance exist between valuation distributions

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

on the existence of pure and mixed strategy nash equilibria in discontinuous games a game is better reply secure if for every nonequilibrium strategy x and every payoff vector limit u resulting from strategies approaching x some player i has a strategy yielding a payoff strictly above u i even if the others deviate slightly from x if strategy spaces are compact and convex payoffs are quasiconcave in the owner s strategy and the game is better reply secure then a pure strategy nash equilibrium exists better reply security holds in many economic games it also permits new results on the existence of symmetric and mixed strategy nash equilibria

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