nep-ind New Economics Papers
on Industrial Organization
Issue of 2012‒01‒10
two papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Profitability in Cournot and Bertrand Mixed Markets under Endogenous Objectives By Scrimitore, Marcella
  2. Pricing in Retail Payment Systems: A Public Policy Perspective on Pricing of Payment Cards By Wilko Bolt; Sujit Chakravorti

  1. By: Scrimitore, Marcella
    Abstract: We examine both quantity and price competition between a number of profit-maximizing firms and a state-controlled enterprise (SCE). The objective function of the latter is strategically defined by a welfare-maximizing government which weighs the SCE’s profits relative to consumer surplus and private profits. Different motives drive the government‘s optimal behavior in the two competitive settings and lead all firms in oligopoly to gain higher profits in Cournot than in Bertrand. The profit ordering is reverted, and social welfare is enhanced, with respect to the purely-mixed market examined by Ghosh and Mitra (2010). In duopoly, aggregate profits are equivalent in Cournot and Bertrand.
    Keywords: Cournot; Bertrand; endogenous objectives; partial privatization
    JEL: L32 L13 D43
    Date: 2011–10–24
  2. By: Wilko Bolt; Sujit Chakravorti
    Abstract: The provision of retail payment services is complex with many participants engaging in a series of interrelated bilateral transactions and subject to large economies of scale and scope along with strong adoption, usage and network externalities. This makes sound public policy difficult. We focus on three types of market interventions for various countries. We argue that intervention into payment markets should concentrate on the removal of entry barriers in payment markets and providing greater incentives to adopt efficient payment instruments without stifling private sector investment in more efficient payment technologies over the long term. While the theoretical literature on the economics of payment cards is growing, the empirical literature is yet too limited to provide much guidance to public authorities. Eventually, the outcomes from different types of market interventions will provide a useful “natural experiment” to refute or validate the various theories of the economics of payments.
    Keywords: Retail payments; market interventions; pricing; public policy
    JEL: L11 G21 D53
    Date: 2011–12

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