bluuebunny/crossref_metadata_2025 huggingface dataset:
Theory of Credit Card Networks: A Survey of the Literature
Authors: Chakravorti Sujit
Published: November 2009

Credit cards provide benefits to consumers and merchants not provided by other payment instruments as evidenced by their explosive growth in the number and value of transactions over the last 20 years. Recently, credit card networks have come under scrutiny from regulators and antitrust authorities around the world. The costs and benefits of credit cards to network participants are discussed. Focusing on interrelated bilateral transactions, several theoretical models have been constructed to study the implications of several business practices of credit card networks. The results and implications of these economic models along with future research topics are discussed.
An Introduction to the Economics of Payment Card Networks
Authors: Hunt Robert M.
Published: November 2009

Open payment card networks typically coordinate the activities of thousands of financial institutions that issue cards, millions of retail locations that accept them, and several hundred million consumers that use them. This coordination can include the collective setting of certain prices and other controversial network rules. Such practices have recently come under the scrutiny of antitrust authorities in the U.S. and abroad. This article provides a brief overview of the economics of the payment card industry, explaining some of the differences from the textbook model of competitive markets. Such differences are important factors for the antitrust analysis of payment card networks.
Technology Adoption and Consumer Payments: Evidence from Survey Data
Authors: Hayashi Fumiko , Klee Elizabeth
Published: November 2009

Consumers pay for hundreds of goods and services each year, but across households and across goods, consumers do not choose to pay the same way. This paper posits that payment choices depend in part on consumers' propensity to adopt new technologies and in part on the nature of the transaction. To test this hypothesis, this paper analyzes consumer's payment instrument use at the point of sale and for bill payment. The sample includes consumers surveyed in 2001, who are primarily users of the Internet. The results indicate that consumers who use new technology or computers are more likely to use electronic forms of payment, such as debit cards and electronic bill payments. Particularly, the use of direct deposit is a significant predictor of electronic payment use. Furthermore, the results indicate that payment choice depends on the characteristics of the transaction, such as the transaction value, the physical characteristics of the point of sale, and a bill's frequency and value variability.
Data Networks are Lightly Utilized, and will Stay that Way
Authors: Odlyzko Andrew
Published: November 2009

The popular press often extolls packet networks as much more efficient than switched voice networks in utilizing transmission lines. This impression is reinforced by the delays experienced on the Internet and the famous graphs for traffic patterns through the major exchange points on the Internet, which suggest that networks are running at full capacity. This paper shows the popular impression is incorrect; data networks are very lightly utilized compared to the telephone network. Even the backbones of the Internet are run at lower fractions (10% to 15%) of their capacity than the switched voice network (which operates at over 30% of capacity on average). Private line networks are utilized far less intensively (at 3% to 5%). Further, this situation is likely to persist. The low utilization of data networks compared to voice phone networks is not a symptom of waste. It comes from different patterns of use, lumpy capacity of transmission facilities, and the high growth rate of the industry.
Different Approaches Towards Electricity Transmission Expansion
Authors: Rosellón Juan
Published: November 2009

There is an intense debate regarding the best way to attract investment for the long-term expansion of an electricity transmission network. We study three hypotheses: the long-term financialtransmission- right hypothesis; the incentive-regulation hypothesis; and the market-power hypothesis. The first approach derives optimal transmission expansion through auctions of longterm financial transmission rights by an independent system operator. The second provides a Transco with incentives to expand the network by making it face the entire social cost of congestion. The third approach defines optimal transmission expansion according to the strategic behavior of generators. This paper discusses the analytical and practical strengths and weaknesses of each approach.
The Impact of the Regulatory Process and Price Cap Regulation in Latin American Telecommunications Markets
Authors: Ros Agustin J.
Published: November 2009

I empirically examine the impact of the liberalization and regulatory process on the Latin American telecommunications sector during the period 1990-1998. I find that privatisation and the existence of an independent regulator are positively associated with teledensity and operating efficiency while competition and price cap regulation are strongly positively associated with teledensity. This study confirms results in previous research that identify the importance of an independent regulator, competition and privatisation. Moreover, this study provides an initial examination of the positive impact that price cap regulation has had on telecommunications market in Latin America.
Reflections on Incentive Regulation
Authors: Littlechild Stephen
Published: November 2009

This paper reviews in turn the papers in this Symposium on incentive regulation. It adduces the UK experience with incentive regulation, particularly in the electricity sector, to evaluate, amongst other things, the reasons for development and adoption of this approach, the determinants of setting X, and the case for more advanced metering. It suggests, among other things, that price caps can be designed to facilitate the transition to retail competition, that a rise in complaints might be explicable in part by factors other than quality of service, that TELRIC pricing has yet to acknowledge fully the implications of time and lack of knowledge, and that a failure to recognise the impact of competition on quality and variety of service could underestimate the benefits of competition in supply. It recognises similarities and some differences between the UK experience and the accounts of regulators that have introduced incentive regulation in the US.
Restructuring Industries: The Carrot and the Stick
Authors: Sherman Roger
Published: November 2009

Restructuring brings market incentives into formerly monopolized network industries and raises a host of questions about whether the carrot of profit seeking can be disciplined by the stick of competition. In the telephone industry access pricing is an issue, and major problems are illustrated. In the electricity industry other problems are described and possible solutions are briefly sketched.
Regulatory Impressionism: What Regulators Can and Cannot Do
Authors: Gifford Raymond L.
Published: November 2009

The decision-making process in state utility commissions is best described as "regulatory impressionism." Working in concert with longstanding notions of judicial deference, the existence of regulatory impressionism has far-reaching implications for the move towards a competitive marketplace in the digital age. This article explores how state commissions should operate given a plethora of constraints from both internal and external sources, concluding that the most effective reforms must come from within.
One-sided Logic in Two-sided Markets
Authors: Wright Julian
Published: November 2009

In this paper, I consider eight basic fallacies that can arise from using conventional wisdom from one-sided markets in two-sided market settings. These fallacies are illustrated using statements made in the context of regulatory investigations into credit card schemes in Australia and the United Kingdom. I discuss how these fallacies may be reconciled by proper use of a two-sided market analysis, making reference to the relevant economics literature where applicable. The analysis is supported by observations on other two-sided markets.
Competition Policy in the Southern Mediterranean Countries
Authors: Geradin Damien , Petit Nicolas
Published: November 2009

The main objective of this paper is to examine the state of adoption and implementation of competition rules in the 12 Southern Mediterranean countries (the "Mediterranean Partners") engaged in association agreements with the EC in the framework of the Barcelona Declaration of November 1995.
Ocean Shipping Cartels: A Survey
Authors: Sjostrom William
Published: November 2009

Liner shipping has been characterized by collusive agreements, called shipping conferences, since its founding in the mid-nineteenth century. This article surveys the competing models of shipping conferences, including monopolizing cartels and destructive competition models, and reviews a variety of their practices to see how much light they can shed on the profitability and efficiency of conferences.
Port Pricing Structures and Ship Efficiency
Authors: Strandenes Siri Pettersen
Published: November 2009

The paper discusses port pricing structures that enhance ship efficiency. Traditionally, ports use public infrastructure pricing, which does not take differences in waiting cost into considerations. We present two alternatives, a two part priority pricing scheme and port slot auctions, as alternative scheduling and pricing schemes that enhance ship efficiency.
Exclusive Licensing in Harbour Towage
Authors: Ergas Henry , Fels Teresa , Soon Jason
Published: November 2009

The question of whether exclusive licensing of the right to provide harbour towage services in ports can provide a superior outcome to open competition has been among the questions that have recently preoccupied Australian policymakers. The purpose of this paper is to evaluate the arguments for and against the introduction of exclusive licensing of harbour towage by way of a review of the more general literature on franchise bidding. The paper argues that the general policy trend in Australia towards greater acceptance of exclusive licensing arrangements for harbour towage in Australia is misguided because the costs of open entry tend to be overestimated while the practical difficulties of exclusive licensing tend to be underestimated.
Wage Differentials of Intermodal Transportation Carriers and Ports: Deregulation Versus Regulation
Authors: Talley Wayne K.
Published: November 2009

This paper investigates the wage differentials of intermodal transportation carriers and ports under carrier economic regulation and deregulation. The estimation results suggest that the union wages of truck drivers, rail engineers and port dockworkers were comparable in the regulation period; in the deregulation period the union wages of truck drivers and rail engineers declined relative to those of dockworkers. The wage differential estimates indicate negative union hourly wage gaps for truck drivers and rail engineers of 22.7% and 6.9%, respectively, versus dockworkers. These results reflect the increase (decrease) in the relative bargaining power of dockworkers (truck drivers and rail engineers) in the deregulation period.
New Tools for Studying Network Industry Reforms in Developing Countries: The Telecommunications and Electricity Regulation Database
Authors: Wallsten Scott , Clarke George , Haggarty Luke , Kaneshiro Rosario , Noll Roger , Shirley Mary , Xu Lixin Colin
Published: November 2009

We construct comprehensive and consistent datasets on telecommunications and electricity regulations in developing countries through extensive surveys of regulators. The database of telecommunications regulations includes 178 variables on regulatory governance and content in 45 countries. The database of electricity regulations includes 374 variables in 20 countries. This paper motivates the data collection exercise, explains the survey design, and provides a few examples of the types of information and results the data can yield. The appendix provides links to the freely available datasets and codebooks.
The Union Pacific/Southern Pacific Rail Merger: A Retrospective on Merger Benefits
Authors: Breen Denis A.
Published: November 2009

This retrospective case study of merger efficiencies focuses on the 1996 merger of two large, U.S. rail networks. Information on the public record permits some evaluation of pre-merger efficiency claims, and the weighing of those claims against regulatory and antitrust standards. Access to additional public and non-public information also permits at least a preliminary determination that a number of the claimed efficiencies were plausibly merger-specific and actually realized post-merger. This is contrary to skepticism expressed about merger efficiency claims, both generally and with respect to this particular rail merger, and thereby illustrates the value of doing retrospective studies of merger outcomes.
The Evolution of Price Discrimination in Transportation and its Implications for the Internet
Authors: Odlyzko Andrew
Published: November 2009

A wide-ranging discussion of the evolution of pricing in early transportation industries, such as lighthouses, canals, and turnpikes, is presented. It shows that price discrimination was an important factor in the development of those industries, and tended to intensify with time. In order to make differential tariffs effective, service providers had the right of detailed inspection of the cargo. These historical precedents help explain the drive by large sectors of the telecommunications industry to gain greater control over what is transmitted over the Internet. The implications for the evolution of the Internet are briefly explored.
Road Pricing in Practice and Theory
Authors: Mcdonald John F.
Published: November 2009

This introductory article to the special issue discusses briefly both the practice and theory of road pricing. Actual methods of charging for road use are discussed, and the current trend towards greater use of time-of-day congestion tolls is noted. The basic model of traffic congestion and road pricing is presented next, and this is followed by a summary of the extensions to the basic model represented in this issue of the Review of Network Economics. Researchers are now developing models that come very close to presenting realistic congestion toll systems that are reasonably efficient.
User-Optimal and System-Optimal Route Choices for a Large Road Network
Authors: Boyce David , Xiong Qian
Published: November 2009

Solutions to the route choice problem for assumptions of user-optimality and system-optimality are presented for the road network of the Chicago region. Regionwide results show a 5% decrease in total travel time would be achieved during the morning peak period, if a system-optimal solution based on travel times were implemented. Among the costs of this solution is a 1.5% increase in vehicle-miles traveled. Findings for differences in link flows and individual origin-destination pairs complete the paper.
Long-Run Effects of Partial Tolling Schemes
Authors: Douville Edmond L.
Published: November 2009

The objective of this paper is to make numerical estimates of the effects of various partial tolling schemes in a long-run setting where road capacities are harmonized with the tolling plan. The results demonstrate that different tolling schemes bring about different sets of equilibrium outcomes in respect to optimal investment in road capacity, travel speeds, numbers of road users, and the division of travel between peak and off-peak periods. These differential effects are relevant where, for political or equity reasons, simple maximization of efficiency may not be feasible or desired. The model presented provides a toll for evaluating these trade-offs.
Second-Best Congestion Pricing in Urban Space: Cordon Pricing and Its Alternatives
Authors: Akiyama Takamasa , Mun Se-Il , Okushima Masashi
Published: November 2009

This paper examines the effects of alternative congestion pricing systems, cordon pricing and congestion pricing for existing toll roads, using the network equilibrium model developed for the Osaka Metropolitan Area, Japan. Cordon pricing is more effective in reducing the total efficiency loss from traffic congestion, but produces relatively large amounts of toll revenue. On the other hand, pricing for existing toll roads keeps the loss in consumer surplus (and toll revenue) relatively low to attain the same level of efficiency gain as the cordon pricing.
Vertical Integration and Competition Between Networks
Authors: De Fontenay Catherine C. , Gans Joshua S.
Published: November 2009

This paper provides a simple model of bargaining and integration within a network and considers how intra-network structure is impacted on by competition between networks. Apart from its analytical tractability, our model demonstrates how integration can be used strategically to redistribute network profits from downstream firms to upstream providers of network services. It also demonstrates that increased inter-network competition can mitigate incentives for inefficient integration.
Diagonal Mergers and Foreclosure in the Internet
Authors: Giovannetti Emanuele
Published: November 2009

We study the incentives for a "diagonal" merger between two Internet Service Providers, one a wireless retail only ISP in two origination markets, and the second a vertically integrated wired retailer in one market and an upstream provider in the other. The merger's effects depend on differentiation in access modalities; only with high differentiation does the merger have positive welfare effects. We focus on post-merger foreclosure, which, when it happens, only takes place in the market where the merger is horizontal and not where the merger is vertical. The Network architecture used is meant to capture Internet routing.
Content Delivery and Vertical Integration in On-line Content Markets
Authors: Lanzi Diego , Marzo Massimiliano
Published: November 2009

On-line content delivery and vertical alliances between conduit and content providers are nowadays crucial issues in on-line content markets. In this paper, we discuss and compare two types of model for on-line content delivery: push and pull. We assume non-zero marginal cost for network transits, justified by the presence of network services for content delivery (like data caching). Under both models, we show that the rationale behind vertical strategic integration between conduit and content providers in the case of successive monopolies.
Investment Incentives and Electricity Market Design: the British Experience
Authors: Roques Fabien A. , Newbery David M. , Nuttall William J.
Published: November 2009

There is no academic consensus on which electricity market design provides the least distorting investment incentives. Theory suggests that "energy-only market" can allow capacity cost recovery by generators. However, separate payments for capacity or reserve obligations do not need to rely on infrequent price spikes to remunerate reserve capacity. Three years after the controversial change from the compulsory British Electricity Pool with capacity payments to the decentralised energyonly New Electricity Trading Arrangements (NETA), we contrast the two market designs in terms of investment incentives, analyse NETA's balancing market failures, and review the case for regulatory support for investment.
Market Concentration, Multi-Market Participation And Mergers In Network Industries
Authors: Weisman Dennis L.
Published: November 2009

We use a Cournot model with complementary demands to derive sufficient conditions for mergers that increase market concentration and multi-market participation to lower prices, raise industry profits and hence increase economic welfare. Notably, these findings do not depend upon the realization of merger economies. This analysis may have special relevance for mergers in network industries, including the telecommunications and transportation industries, wherein policymakers have expressed concern about recent consolidation trends.
Two-Sided Markets: A Tentative Survey
Authors: Roson Roberto
Published: November 2009

A recent literature, dealing with special markets characterized by bilateral network externalities, is summarized and critically assessed. Specific features of these markets, in terms of pricing principles and externalities, are discussed first. Afterwards, several issues related to competition between platforms are considered. Finally, implications for competition policy and prospects for future research are briefly discussed.
Intellectual Property and the Markets of Ideas
Authors: Ramello Giovanni B.
Published: November 2009

This article summarizes the law and economics theory of IPRs, while at the same time suggests hints for further research. The standard literature on IPRs generally relies on the thesis of the incentive to create new ideas. Although this argument remains valid in the general case, in several circumstances it fails to take into account various consequences arising from the dynamic effect of IPRs on the market structure. The main conclusion is that the economic evaluation of IP based on a more suitable representation of creative contexts might reveal a different balance of welfare and lead to different policy indications.
Internet Telephony: Effects on the Universal Service Program in the United States
Authors: García-Murillo Martha , Mcknight Lee W.
Published: November 2009

Internet phone services have grown from technical novelty to a competitive threat for traditional circuit-switched telecommunications. Using available telecommunication deployment statistics in the United States and modeling software, this paper presents two scenarios that investigate the potential impact of Internet telephony on universal service programs. They test whether the introduction of this technology and the way it could potentially be regulated would sufficiently reduce contributing carriers' revenues to threaten the viability of the Universal Service Program. We conclude that the regulatory policies developed in the past century to support universal service have been obsolesced by the innovation and creative destruction of Internet telephony.
How Concentrated are Global Infrastructure Markets?
Authors: Benitez Daniel , Estache Antonio
Published: November 2009

The purpose of this paper is to provide a quantitative assessment of the degree of concentration in infrastructure industries at the regional and global levels. We calculate regional and global concentration indexes for electricity generation and distribution, water and sanitation, and fixed and mobile telecommunications. Concentration issues are identified in only about 20% of the cases studied, while a presumption of concentration is found in another 30% of the cases. In more general terms, we find no scope for simple encompassing regional or sectoral statements because concentration is region- and sector-specific.
Interchange Fees in Various Countries: Developments and Determinants
Authors: Weiner Stuart E. , Wright Julian
Published: November 2009

Interchange fees and related issues in payment card markets have been the focus of considerable attention recently. The academic community and public officials have begun to scrutinize these markets. Meanwhile, these markets continue to experience dynamic change as card payments account for an ever-growing share of overall payments. This paper provides an overview of interchange fee developments and issues, and also presents a preliminary analysis of some possible contributing factors. The principal conclusion of the paper is that interchange arrangements vary considerably across countries, and while existing economic theory provides some insight into this market, much remains to be explained.
The Effect of Regulatory Intervention in Two-Sided Markets: An Assessment of Interchange-Fee Capping in Australia
Authors: Chang Howard , Evans David S. , Garcia Swartz Daniel D.
Published: November 2009

We examine the impact to date of the Reserve Bank of Australia's decision to reduce interchange fees on credit cards in Australia by almost half. We find that, in the short run, issuers have recovered between 30 and 40 percent of the loss of interchange fees. Merchants have benefited from lower fees but it is questionable whether those benefits have been substantially passed on to their customers. The per-transaction price at the point of sale has not changed significantly and there is relatively little evidence thus far that the intervention has affected the volume of card transactions in Australia.
Merchant Benefits and Public Policy towards Interchange: An Economic Assessment
Authors: Guerin-Calvert Margaret E. , Ordover Janusz A.
Published: November 2009

We analyze the complex nature of interactions among participants in "two-sided" payments system markets, examine empirical evidence on benefits, especially merchant benefits, and re-assess the role of interchange in balancing interests and allocating costs between merchants and consumers. We conclude there are substantial potential harms to payments systems, consumers, and merchants from imposing cost-based regulation of interchange fees, particularly with network fixed costs. Competition policy, in our view, is the best prescription  through government intervention under the antitrust laws or private challenges to exclusionary strategies that hamper competition to the detriment of cardholders, merchants, and competing networks.
Externalities and Regulation in Card Payment Systems
Authors: Rochet Jean-Charles , Tirole Jean
Published: November 2009

The paper offers a roadmap to the current economic thinking concerning interchange fees. After describing the fundamental externalities inherent in payment systems and analysing merchant resistance to interchange fee increases and the associations' determination of this fee, it derives the externalities' implications for welfare analysis. It then discusses whether consumer surplus or social welfare is the proper benchmark for regulatory purposes. Finally, it offers a critique of the current regulatory approach, and concludes with a call for more novel and innovative thinking about how to reconcile regulators' concerns and the industry legitimate desire to perform its balancing act.
Efficiency and Competition between Payment Instruments
Authors: Farrell Joseph
Published: November 2009

A payment instrument that disproportionately charges merchants (as with high interchange) can take business from others that offer the two-sided customer better deals. This competitive bias arises because merchants internalize cardholders' benefits (even without merchant competition). Use of an instrument with high merchant fees also raises prices paid by other consumers, a non-pecuniary externality. While it can be allocatively efficient to tax rivals of a firm (or cooperative) with market power, competition policy urges otherwise. The competitive bias and the externality on other consumers vanish when competing payment instruments are equally costly to merchants, suggesting a simple policy benchmark.
The No Surcharge Rule and Card User Rebates: Vertical Control by a Payment Network
Authors: Schwartz Marius , Vincent Daniel R.
Published: November 2009

The No Surcharge Rule (NSR) prevents merchants from charging more to consumers who pay by card versus other means ("cash"). We consider a payment network facing local monopolist merchants that serve two consumer groups, card users and cash users. Unlike in prior work, transaction quantities are variable. The NSR raises network profit and harms cash users and merchants; overall welfare rises if and only if the ratio of cash to card users is sufficiently large. With the NSR, the network will grant rebates to card users whenever feasible. If rebates are not feasible, the NSR can harm even card users.
Social Welfare and Cost Recovery in Two-Sided Markets
Authors: Bolt Wilko , Tieman Alexander F.
Published: November 2009

Using a simple model of two-sided markets, we show that, in the social optimum, platform pricing leads to an inherent cost recovery problem. This result is driven by the positive externality of participation that users on either side of the market exert on the opposite side. The contribution of this positive externality to social welfare leads the social planner to increase users' participation by setting prices at both sides of the market such that the total price is below marginal cost. Our result holds for both interior pricing and skewed pricing in two-sided markets. These findings may have interesting consequences for antitrust regulation.
Vertical Governance between Airlines and Airports - A Transaction Cost Analysis
Authors: Fuhr Johannes , Beckers Thorsten
Published: November 2009

With airport privatization and infrastructure expansion projects taking place in the liberalized European air transport market, airport and airline companies are critically reevaluating their vertical governance structures. This paper analyzes the comparative efficiency of vertical governance structures in the airport-airline supply relationship. Using transaction cost economics as the lens of analysis, we develop propositions and present supporting qualitative case studies. Our propositions state that hub airlines and hub airports seek specialized governance structures, while value-based carriers and base airports enter into long-term contracts supported by complementary safeguards. These privately crafted governance modes complement or even replace external regulation.
A Review of the Airport-Low Cost Airline Relationship
Authors: Humphreys Ian , Ison Stephen , Francis Graham
Published: November 2009

This paper seeks to review the airport-airline relationship in the light of the growth in the low cost sector, identifying important issues that airport management should consider when negotiating with low cost airlines. Airports have responded to the potential opportunities that have arisen from the growth of low cost airlines. The low cost model has implications for the airline-airport relationship, forcing airports to negotiate contracts which significantly reduce aeronautical revenues whilst seeking to address this short fall by commercial revenues via increased passenger numbers. Airports have sometimes found it difficult to turn increased passenger volume into additional revenue.
Incompatibility and Investment in ATM Networks
Authors: Hannan Timothy H. , Borzekowski Ron
Published: November 2009

Incompatibility across rival systems can influence incentives to invest in product changes beneficial to the consumer. We investigate this phenomenon in the case of bank ATM networks, where the number of ATM locations is a measure of product quality and surcharge fees serve as an index of incompatibility. Using as a natural experiment the lifting of a surcharge ban in Iowa (and not in neighboring states), we find that the associated increase in incompatibility for Iowa banks caused a substantial increase in the number of ATM locations offered to customers. This effect is larger (in percentage terms) for larger banks.
When Does the Winner Take All in Two-Sided Markets?
Authors: Sun Mingchun , Tse Edison
Published: November 2009

We study the diffusion of competing two-sided networks using a differential game framework. We find that whether the winner takes all depends on the participation behaviour of individual agents on both sides of the market. When individual agents tend to participate in only one network, one network will dominate the market. As the tendency for joining multiple networks increases, the possibility for two networks to co-exist in the long-run also increases. Thus the steady-state market share of competing two-sided networks can be very different depending on adopters' choice of "multi-homing" or "single-homing".
The Economics of Digital Business Models: A Framework for Analyzing the Economics of Platforms
Authors: Brousseau Eric , Penard Thierry
Published: November 2009

The paper proposes an analytical framework for comparing different business models for producing information goods and digital services. It is based on three dimensions that also refer to contrasted literature: the economics of matching, the economics of assembling and the economics of knowledge management. Our framework attempts to identify the principal trade-offs at the core of choices among alternative digital business models, and to compare them in terms of competitiveness and efficiency. It also highlights the role played by users in the production of information goods and competition with pure suppliers.
Merchant or Two-Sided Platform?
Authors: Hagiu Andrei
Published: November 2009

This paper provides a first pass at comparing two polar strategies for market intermediation: "merchant" mode  buying from sellers and reselling to buyers - and "two-sided platform" mode  enabling affiliated sellers to sell directly to affiliated buyers. The merchant mode is more profitable when the chicken-and-egg problem for the two-sided platform is more severe and when the degree of complementarity among sellers' products is higher. The platform mode is preferred when seller investment incentives are important or when there is asymmetric information regarding seller product quality. We discuss these tradeoffs in the context of several prominent digital intermediaries.
The Convergence between Content and Access: Internalizing the Market Complementarity
Authors: Curien Nicolas , Moreau François
Published: November 2009

Developing a simple model of the content and access industries in the digital era, we show that, given the positive consumption externality from entertainment content (music, video) on access networks and playing devices (fixed broadband, 3G mobile, digital players, etc.), both content and access industries have an interest in blurring their business frontiers. As digital piracy, which is still increasing the above externality, benefits access providers to the detriment of content providers, a "win-win" game is possible only if access providers participate in content production, either through a subsidy or co-production.
Modularity and Product Innovation in Digital Markets
Authors: Bourreau Marc , Dogan Pinar , Manant Matthieu
Published: November 2009

Most digital goods have a modular design; that is, they consist of complementary and distinct building blocks, called modules. Modular product design, in contrast to integrated (or integral) design, enables alteration of a specific module that is usually assigned for a specific function without necessarily requiring an entire redesign of the product. This feature facilitates product innovation. The possibility of having common modules embedded in a range of products is likely to affect firms' product innovation strategies and post-innovation competition both in traditional and digital markets. In this paper, we explore such effects with a focus on digital markets.
Irreversible Investment, Capital Costs and Productivity Growth: Implications for Telecommunications
Authors: Bernstein Jeffrey I. , Mamuneas Theofanis P.
Published: November 2009

This paper develops a model incorporating costly disinvestment and estimates the associated commitment premium required to invest in telecommunications. Results indicate that the irreversibility premium raises the opportunity cost of capital by 70 percent. This implies an average annual hurdle rate of return of 14 percent over the period 1986-2002. Irreversibility creates a distinction between observed and adjusted TFP growth. Observed growth, which omits the premium, annually averaged 2.8 percent from 1986 to 2002. This rate exceeded the (premium) adjusted TFP growth by 0.7 percentage points, therefore the average annual observed productivity growth overestimated the corrected rate by 33 percent.
Regulation and Efficiency Incentives: Evidence from the England and Wales Water and Sewerage Industry
Authors: Erbetta Fabrizio , Cave Martin
Published: November 2009

This paper evaluates the impact of the tightening in price cap by OFWAT and of other operational factors on the efficiency of water and sewerage companies in England and Wales using a mixture of data envelopment analysis and stochastic frontier analysis. Previous empirical results suggest that the regulatory system introduced at privatization was lax. The 1999 price review signaled a tightening in regulation which is shown to have led to a significant reduction in technical inefficiency. The new economic environment set by price-cap regulation acted to bring inputs closer to their cost-minimizing levels from both a technical and allocative perspective.
Determinants of Merchant Participation in Credit Card Payment Schemes
Authors: Loke Yiing Jia
Published: November 2009

This paper aims to empirically establish the determinants of merchant participation in credit card payment schemes. It is found that a merchant's personal background, type of business and total value of sales are significant in determining a merchant's acceptance of cards in payment transactions. Further, it is found that customers' usage of credit cards and other merchants acceptance of credit cards in payments have a significant influence on a merchant's decision. Findings also indicate that non-pecuniary strategic factors are stronger drivers and barriers to a merchant's participation in credit cards payments services compared to monetary related factors.
The Swedish Railway Deregulation Path
Authors: Alexandersson Gunnar , Hultén Staffan
Published: November 2009

This paper deals with railway deregulation and related reforms by means of a case study of Sweden, studying the 1988 split of railway infrastructure from operations and the subsequent steps of vertical and horizontal disintegration to a market characterized by decentralization and intra-modal competition. We also analyze the current market situation, in terms of the actors and their roles, and industrial organization measures. This assessment is used to discuss the sustainability of the current regulatory structure, concluding that although it seems more sustainable than in the past, regulators will sooner or later have to deal with some of its inconsistencies.
Entry in Liberalized Railway Markets: The German Experience
Authors: Lalive Rafael , Schmutzler Armin
Published: November 2009

In Germany, competitive franchising is increasingly being used to procure passenger railway services that were previously provided by a state monopolist. This paper analyzes 77 tenders that differ with respect to network size, service frequency, contract duration and the proximity to other lines that are already run by competitors of DB Regio, a subsidiary of the successor of the former state monopolist. Our analysis shows that competitors are more likely to win small networks and more recent auctions. Other controls such as contract duration and the adjacency to other lines run by entrants are insignificant.
Regulatory Competition in Network Interconnection Pricing
Authors: Agrell Per J. , Pouyet Jerome
Published: November 2009

This paper covers network investment problems under decentralized control of regulation, infrastructure ownership and management. The model features two countries managing domestic infrastructures, used simultaneously for downstream international service provision. Initially, the welfare losses from non-cooperative investment financing policy and access pricing are derived. The impact of strategic interaction between the countries' access prices on the choice of financing policy is investigated. Under strict budget balancing, there are no incentives for efficiency improving investments. Further, investment coordination is shown useless in the absence of regulatory coordination. Illustrations from European network regulation policy for energy and rail are presented.
Multi-National Policies for the Universal Service Obligation in the Postal Sector under Entry
Authors: Crew Michael A. , Kleindorfer Paul R.
Published: November 2009

Suppose a multi-national agency can set minimum standards for the postal USO that apply to the countries under its jurisdiction, and that each country is required to comply with, or exceed, these standards. We examine the trade-offs that ensue across countries in designing an efficient USO at the multi-national level when these postal markets are also simultaneously opened to competitive entry. In particular, the paper examines when "subsidiarty dominates" (in which case the multinational regulator should leave the determination of the USO entirely in the hands of national regulators) and when some intervention by the multi-national regulator is desirable.
Access Pricing and Entry in the Postal Sector
Authors: Bloch Francis , Gautier Axel
Published: November 2009

In a fully liberalized postal market, two business models will be possible for a new postal operator: (1) access: where the firm performs the upstream operations and uses the incumbents network for final delivery and (2) bypass where the competing firm controls the entire supply chain and delivers mails with its own network. The choice between access and bypass depends on the entrant's delivery cost relative to the access price. In this paper, we derive welfare maximizing prices for the incumbent operator and we show how these prices should be re-balanced when the entry method is considered as endogenous.
Deregulation of Letter Markets and its Impact on Process and Product Innovation
Authors: Dietl Helmut , Grütter Andreas , Lutzenberger Martin
Published: November 2009

Does the European model of end-to-end competition or the US model of worksharing provide stronger innovation incentives for incumbent postal operators? We answer this question based on a two stage model with price competition and product differentiation. We find that incentives for process innovation in the upstream activities are stronger under end-to-end competition. Incentives for process innovation in delivery are stronger under worksharing, assuming that the entrant's demand under worksharing is higher than the decline in the incumbent's demand. Regarding product innovation, incentives depend on the access price.
The Distribution of Post Offices in Italy and the United States
Authors: Cohen Robert , Di Paola Luigi , Sheehy Renee , Comandini Vincenzo Visco
Published: November 2009

This paper illustrates the differences in the ordinary commercial distribution of retail outlets and the politically inspired distribution of post offices in Italy and the United States. It compares the distribution of bank branches to the distribution of post offices in Italy and the distribution of retail pharmacies to the distribution of post offices in the U.S. It provides the historical reasons for the disproportionate number of rural post offices in both countries. It also comments on the burden of financing retail postal counters in a competitive environment and on some ways to approach the issue.
Indirect Network Effects and Adoption Externalities
Authors: Church Jeffrey , Gandal Neil , Krause David
Published: November 2009

Can indirect network effects lead to adoption externalities? If so, when? We show that in markets where consumption benefits arise from hardware/software systems, adoption externalities will occur when there are (i) increasing returns to scale in the production of software, (ii) free entry in software, and (iii) consumers have a preference for software variety. The private benefit of the marginal hardware purchaser is less than the social benefit since the marginal hardware purchaser does not internalize the welfare improving response of the software industry, particularly the increase in software variety, on inframarginal purchasers when the market for hardware expands.
The Economics of the Online Advertising Industry
Authors: Evans David S.
Published: November 2009

Internet-based technologies are revolutionizing the stodgy $625 billion global advertising industry. There are a number of public policy issues to consider. Will a single ad platform emerge or will several remain viable? What are the consequences of alternative market structures for a web economy that is increasingly based on selling eyeballs to advertisers? This article describes the online advertising industry. The industry is populated by a number of multi-sided platforms that facilitate connecting advertisers to viewers. Search-based advertising platforms, the most developed of these, have interesting economic features that result from the combination of keyword bidding by advertisers and single-homing.
Reflections of an Unwitting 'Political Entrepreneur'
Authors: Kahn Alfred E.
Published: November 2009

By focusing on my role in airline deregulation, Philip Weiser's generous characterization of me as a political entrepreneur slights the large part of my career, expounding and then applying the economics of regulation to New York's public utilities. It fails also to convey the gradualness of my realization, at the CAB, that there was no acceptable half-way house between the thoroughgoing regulation I had inherited and genuine deregulation eighteen months later. Finally, it overlooks the contradiction most 18th century liberals would see between my efforts at the CAB and my conception of the strong antitrust policy that logically accompanies deregulation.
Network Neutrality: Lessons from Transportation
Authors: Levinson David
Published: November 2009

The politically-charged notion of network neutrality came to the fore in the first decade of the 21st century, using analogy from transportation as one of the key tools in motivating arguments. This paper examines how the various notions around network neutrality (common carriage, regulation, price discrimination) have historically played out in the transportation sector, and suggests some of the current arguments fail to understand the nuances of how complex networks actually operate to serve the many demands placed on them.
Network Neutrality, Search Neutrality, and the Never-ending Conflict between Efficiency and Fairness in Markets
Authors: Odlyzko Andrew
Published: November 2009

Historical precedents suggest that the basic issues underlying the debate about network neutrality, dealing with the balance between efficiency and fairness in markets, will never be resolved. Should net neutrality dominate, attention would likely turn to other parts of the economy that might be perceived as choke points for economic activities, such as Net search. Traditionally, the balance between efficiency and fairness that was struck by policy makers depended heavily on cost considerations. When a service was expensive to provide, fairness was deemphasized. In the current discussion of network neutrality, this issue appears to be unduly neglected.
Consumer Awareness and the Use of Payment Media: Evidence from Young Finnish Consumers
Authors: Hyytinen Ari , Takalo Tuomas
Published: November 2009

We provide evidence that increasing consumer awareness may have been underlying the rise of debit card use. We find that consumers typically use multiple payment media and that this behavior is closely related to the use of debit cards besides cash. Moreover, it turns out that the use of multiple payment media is directly related to consumer awareness but that not controlling for the endogeneity of awareness can bias its effect downwards. Conditional on the use of multiple payment methods, however, awareness does not distinguish those making debit a primary payment method from those making it secondary to cash.
Finding the Sweet Spot for Effective Regulation
Authors: Hubbard R. Glenn
Published: November 2009

Glenn Hubbard of Columbia University calls for better regulation, not more regulation, to avoid future financial crises.
Financial Regulatory Reform: The Politics of Denial
Authors: Posner Richard A
Published: November 2009

Richard Posner argues that Bernanke, Geithner, and other top economic officials, being implicated in the causes of the crisis, should not have the last word on reforms necessary to prevent a recurrence.
Government Guarantees: Why the Genie Needs to Be Put Back in the Bottle
Authors: Richardson Matthew , Acharya Viral V
Published: November 2009

Viral Acharya and Matthew Richardson point out that bank capital requirements and deposit insurance premia need to be based on the bank's systemic risk rather than its individual risk.