nep-ind New Economics Papers
on Industrial Organization
Issue of 2006‒10‒21
two papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Quantity precommitment, Cournot outcome and asymmetric capacity costs By Nicolas Gruyer
  2. Assessing effects of price regulation in retail payment systems By Kemppainen , Kari

  1. By: Nicolas Gruyer (LEEA (air transport economics laboratory), ENAC)
    Abstract: This note extends Kreps and Scheinkman's result -showing that a production capacity choice stage followed by price competition yields the same outcome as a Cournot game- to a setting where capacity costs are asymmetric.
    Keywords: capacity, Bertrand competition, Kreps-Scheinkman, asymmetric costs.
    JEL: D43 L13
    Date: 2006–08–11
  2. By: Kemppainen , Kari (Bank of Finland Research)
    Abstract: This paper considers effects of price regulation in retail payment systems by applying the model of tele-communications competition by Laffont-Rey-Tirole (1998). In our two-country model world there is one retail payment network located in each country and markets are segmented à la Hotelling. We show that the optimal price under price regulation is the weighted average of pre-regulation domestic and cross-border prices where the degree of home-bias in making payments serves as the weight. Furthermore, we find that the general welfare effects of price regulation are ambiguous: gross social welfare is higher un-der price discrimination than under price regulation in the special case where costs of access to banking services (transportation costs) are high. However, there also exist cases where prohibitively high transac-tion costs make price discrimination to reduce total welfare. Finally, if transportation costs are reduced sufficiently, segmentation of payment markets is eliminated. Markets then become fully-served as in the original Laffont-Rey-Tirole model, suggesting that price discrimination would be beneficial for welfare.
    Keywords: payment systems; price regulation; retail payments
    JEL: D49 G28 L59
    Date: 2005–07–11

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