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on Network Economics |
| By: | Fumiko Hayashi |
| Abstract: | This paper examines how competition among payment card networks—three-party scheme networks and four-party scheme networks—affects pricing as well as the welfare of various parties. A competing network has an incentive to provide rewards to its card users. By providing more generous rewards than its rival networks, the network can increase its own card transactions because multihoming cardholders—who hold multiple networks’ cards—choose to use its card instead of using its rivals’. Although a monopoly network does not have such an incentive, in a monopoly four-party scheme network, competition among card issuers likely makes issuers provide rewards. Due to rewards, the merchant fees under competition can be higher than the merchant fees set by a monopoly network, unless the majority of cardholders are multihoming. Generally, cardholding consumers are better off under network competition. In contrast, non-cardholding consumers are better off only when network competition reduces merchant fees lower than those under monopoly. The results suggest that policies that simply encourage network competition will likely increase cardholder rewards but will not necessarily lower merchant fees in the U.S. payment card market. Several empirical indicators may possibly tell which direction the U.S. payments system needs to go. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkpw:psrwp06-03&r=net |
| By: | Dubois, Pierre; Hernandez-Perez, Adriana; Ivaldi, Marc |
| Abstract: | This paper analyzes the demand and cost structure of the French market of academic journals, taking into account its intermediary role between researchers, who are both producers and consumers of knowledge. This two sidedness feature will echoes similar problems already observed in electronic markets - payment card systems, video game consoles, etc. - such as the chicken and egg problem, where readers won’t buy a journal if they do not expect its articles to be academically relevant and researchers, that live under the mantra 'Publish or Perish', will not submit to a journal with either limited public reach or weak reputation. After the merging of several databases, we estimate the aggregated nested logit demand system combined simultaneously with a cost function. We identify the structural parameters of this market and find that price elasticities of demand are quite large and margins relatively low, indicating that this industry experiences competitive constraints. |
| Keywords: | differentiated products models; media industry; two-sided platforms |
| JEL: | L11 L82 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5990&r=net |
| By: | Hans Jarle Kind; Marko Koethenbuerger; Guttorm Schjelderup |
| Abstract: | Two-sided platform firms serve distinct customer groups that are connected through interdependent demand, and include major businesses such as the media industry, banking, and the software industry. A well known textbook result in one-sided markets is that a government may increase a monopolist's output and reduce the deadweight loss by subsidizing output. The present paper shows that this result need not hold in a two-sided market. On the contrary, a higher ad-valorem tax rate - rather than a subsidy - could increase output and enhance welfare. |
| Keywords: | two-sided markets, ad-valorem taxes, specific taxes, imperfect competition, industrial organization |
| JEL: | D40 D43 H21 H22 L13 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1871&r=net |
| By: | Fiorenza BELUSSI; Luciano PILOTTI; Silvia Rita SEDITA |
| Abstract: | The work offers an integrated view on how knowledge is developed in localised systems of specialised firms (industrial districts - IDs), through informal social networks (communities of practice - CoPs), and firms networks, in an osmotic process between the internal to the district knowledge and the external to the district knowledge. Contrary to the Marshallian consolidated tradition, we describe the functioning of the modern industrial district emphasising not just the role of the local “industrial atmosphereâ€, but the modern aspect of “learning at the boundariesâ€, where local actors mix sources of knowledge located inside the district (exploitation of local resources) with external sources (exploration of global knowledge). Our empirical work, based on the analysis of three Italian industrial districts, shows that, in relation to the aspect of exploitation of local resources, the investment (both direct and indirect) of firms in augmenting their capabilities is juxtaposed to the activity organised by the district meta-organisers of cultivating local resources; furthermore, in relation to the exploration of global knowledge, internal/external switchers allow the exploration of global knowledge flows. It is a process that combines forms of localised learning with learning at the boundaries, through the access to pipelines (FDI, firms networks, distant KIBS) and boundary spanning actors (external CoPs). |
| Keywords: | Industrial Districts, Learning, Communities of Practice, Networks |
| JEL: | D83 M54 R12 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:mil:wpdepa:2006-40&r=net |
| By: | Schmidt, Klaus M. |
| Abstract: | In this paper we investigate the pricing incentives of IP holders and compare the equilibrium royalty rates charged by vertically integrated IP holders with those of non- integrated IP holders. We show that under many circumstances non-integrated companies are likely to charge lower royalties than their vertically integrated counterparts. The results of this paper are of special relevance for the analysis of competition in CDMA and WCDMA technology licensing, where some IP holders are not vertically integrated into handset and infrastructure manufacturing, while others are. |
| Keywords: | complementary patents; IP rights; licensing; vertical integration |
| JEL: | D43 L15 L41 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5987&r=net |
| By: | Zhu Wang |
| Abstract: | This paper presents a model for the credit card industry, where oligopolistic card networks price their products in a complex marketplace with competing payment instruments, rational consumers/merchants, and competitive card issuers/acquirers. The analysis suggests that card networks demand higher interchange fees to maximize card issuers' profits as card payments become more efficient. At equilibrium, consumer rewards and card transaction volume also increase, while consumer surplus and merchant profits may not. The model provides a unified framework to evaluate credit card industry performance and government interventions. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkpw:psrwp06-04&r=net |
| By: | Eugene Amromin; Carrie Jankowski; Richard Porter |
| Abstract: | Rising traffic congestion and the need to improve operational efficiency prompted the Illinois Tollway Authority to unveil plans to reconfigure its road network for “stop-free” electronic toll collection. Committing to an extensive construction program would have required the Tollway to ensure that enough drivers had electronic payment devices (branded as I- PASS). Conversely, without reconfigured toll gates the drivers would have had less reason to own an I-PASS. To resolve this potentially thorny chicken-and-egg problem, the Tollway put in place a new I-PASS distribution network and then dramatically raised the price for cash toll payments. This paper focuses on consumer response to the change in relative prices. Using tollway traffic data, we document a substantial aggregate increase in electronic toll payments. The propensity to pay electronically rose uniformly throughout the day, reflecting the effectiveness of the Tollway’s actions in modifying behavior of both commuters and leisure drivers. However, not all drivers appear to have responded to the price change per se. To analyze the relative importance of price, income, and fixed participation costs we use the Census tract level data on employment and residential location to construct a ZIP-code measure of the likelihood of commuting to work via the tollway. Conditional on this measure, we show that the adoption of electronic payments among lower-income households was indeed influenced by the price change. In contrast, high- and medium-income households responded to lower fixed costs of obtaining I-PASS at conveniently located supermarkets. Finally, we document the role of social network relationships, as changes in I-PASS ownership for all income groups were strongly affected by I-PASS use among neighbors and co- workers. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-06-16&r=net |