nep-net New Economics Papers
on Network Economics
Issue of 2005‒05‒23
three papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. The V L value for network games By Hendrickx,Ruud; Borm,Peter; Brink,Rene van den; Owen,Guillermo
  2. A puzzle of card payment pricing : why are merchants still accepting card payments? By Fumiko Hayashi
  3. Barriers to network-specific innovation By Antoine Martin; Michael J. Orlando

  1. By: Hendrickx,Ruud; Borm,Peter; Brink,Rene van den; Owen,Guillermo (Tilburg University, Center for Economic Research)
    Abstract: In this paper we consider a proper Shapley value (the V L value) for cooperative network games. This value turns out to have a nice interpretation. We compute the V L value for various kinds of networks and relate this value to optimal strategies in an associated matrix game.
    JEL: C71
    Date: 2005
  2. By: Fumiko Hayashi
    Abstract: This paper presents models that explain why merchants accept payment cards even when the fees they face exceed the transactional benefits they receive from a card transaction. Such merchant behaviors can be explained by competition among merchants and/or the effectiveness of the merchant’s card acceptance in shifting cardholders’ demand for goods upward. The prevalent assumption used in payment card literature—merchants accept cards only when their transactional benefits are higher than the fees they pay—holds only for a monopoly merchant who faces an inelastic consumer demand. A card network that wants all merchants in a given industry to accept cards sets a lower merchant fee initially and then gradually increases it to the highest possible level, which may be higher than the sum of the merchant’s transactional benefit and the merchant’s initial margin without cards. Such merchant fees potentially create inequality between cardholders and non-cardholders.
    Keywords: Credit cards
    Date: 2004
  3. By: Antoine Martin; Michael J. Orlando
    Abstract: We consider an environment in which participants make payments over a network and can invest in a technology that reduces the marginal cost of using the network. A network effect results in multiple equilibria; either all agents invest and usage of the network is high or no agents invest and usage of the network is low. The high-usage equilibrium can be implemented through introduction of a coordinator. Under monopoly network ownership, however, fixed costs associated with use of the network-specific technology result in a hold-up problem that implements the low-investment equilibrium. And even where subsidies can avoid such hold-up, optimal monopoly pricing of network usage may avoid investment in the network-specific technology if demand for on-network transactions is sufficiently inelastic.
    Keywords: Payment systems
    Date: 2004

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