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on Network Economics |
| By: | Wilko Bolt (Corresponding author: Research Division, De Nederlandsche Bank, Amsterdam,The Netherlands); David Humphrey (Florida State University – Department of Finance,Tallahassee, FL 32306-1042, United States) |
| Abstract: | This paper discusses various theoretic concepts which play a role in assessing the public benefits of Target, the large value RTGS payment network operated by the Eurosystem. These concepts touch upon natural monopoly, network externalities, competition and contestability, as well as economies of scale and scope. The existence of a natural monopoly provides a rationale for a temporary partial or full subsidy in order for Target to achieve the ‘most efficient scale’ or apply the most efficient technology to lower unit costs. Such a subsidy could be implemented through temporary 'penetration' pricing. Based on empirical results for the Federal Reserve’s payment system (Fedwire), it is further argued that if Target decided to standardize its operating platforms and consolidate its processing sites into one or a few centers, it too could realize strong scale economy benefits and lower unit costs. |
| Keywords: | public good; natural monopoly; most efficient scale; partial subsidy. |
| JEL: | G20 H41 L10 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20050505&r=net |
| By: | Christian Growitsch |
| Abstract: | Quality of service is of major economic significance in natural monopoly infrastructure industries and is increasingly addressed in regulatory schemes. However, this important aspect is generally not reflected in efficiency analysis of these industries. In this paper we present an efficiency analysis of electricity distribution networks using a sample of about 500 electricity distribution utilities from seven European countries. We apply the stochastic frontier analysis (SFA) method on multi-output translog input distance function models to estimate cost and scale efficiency with and without incorporating quality of service. We show that introducing the quality dimension into the analysis affects estimated efficiency significantly. In contrast to previous research, smaller utilities seem to indicate lower technical efficiency when incorporating quality. We also show that incorporating quality of service does not alter scale economy measures. Our results emphasise that quality of service should be an integrated part of efficiency analysis and incentive regulation regimes, as well as in the economic review of market concentration in regulated natural monopolies. |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:iwh:dispap:3-05&r=net |
| By: | Karlo Kauko (Monetary Policy and Research Department, Bank of Finland) |
| Abstract: | Central securities depositories (CSDs) have opened mutual links, but most of them are seldom used. Why are idle links established? By allowing a foreign CSD to offer services through the link the domestic CSD invites competition. The domestic CSD can determine the cost efficiency of the rival by charging suitable fees, and prevent it from becoming more competitive than the domestic CSD. By inviting the competitor the domestic CSD can commit itself not to charge monopoly fees for secondary market services. This enables the domestic CSD to charge high fees in the primary market without violating investors’ participation constraints. |
| Keywords: | securities settlement systems, central securities depositories, network industries, access pricing |
| JEL: | G29 L13 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20050427&r=net |
| By: | Cornelia Holthausen (European Central Bank, DG Research); Jens Tapking (European Central Bank, DG Payment Systems and Market Infrastructure) |
| Abstract: | The competition between a central securities depository (CSD) and a custodian bank is analysed in a Stackelberg model. The CSD sets its prices first, the custodian bank follows. There are many investor banks each of which has to decide whether to use the service of the CSD or of the custodian bank. This decision depends on the prices and the investor bank's preferences for the inhomogeneous services of the two service providers. Since the custodian bank uses services provided by the CSD as input, the CSD can raise its rival's costs. However, due to network externalities, the CSD's equilibrium market share is not necessarily higher than socially optimal. This result has important policy implications that are related to a discussion currently taking place in the securities settlement industry. |
| Keywords: | Securities settlement, network competition, raising rival's cost. |
| JEL: | G10 G20 L14 |
| Date: | 2004–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20040376&r=net |
| By: | Mark Furletti; Stephen Smith |
| Abstract: | Summary: This is the first in a series of three papers that examines the protections available to users of various electronic payment vehicles who fall victim to fraud, discover an error on their statement, or have a dispute with a merchant after making a purchase. Specifically, it examines in detail the federal and state laws that protect consumers in the three situations described above as well as the relevant association, network, and bank policies that may apply. The protection information included in this paper is derived from a wide range of public and non-public sources, including federal and state statutes, consumer-issuer contracts, and interviews with scores of payments industry experts. This first paper focuses on the two most widely used electronic payment methods: credit cards and debit cards. The second paper in the series will examine two newer electronic payment vehicles: ACH debits and prepaid cards. The third paper will discuss the broader industry and policy implications of the authors’ findings. |
| Keywords: | Regulation E: Electronic Fund Transfers ; Regulation Z: Truth in Lending ; Consumer protection ; Fraud |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpdp:05-01&r=net |
| By: | Paul de Bijl |
| Abstract: | This paper presents a basic framework to assess whether structural (vertical) separation is desirable. It is discussed within the setting of fixed telecommunications markets. From an economist’s perspective, the key question that underlies the case for structural separation is: is there a persistent bottleneck? The obvious candidate is the ‘local loop’, or local access network. If yes then it makes sense to compare the costs and benefits of structural separation. The framework provides a set of options that the regulator can use strategically, by using the threat of a break-up to influence an incumbent’s competitive stance in the wholesale market. |
| JEL: | L12 L40 L51 L96 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1554&r=net |