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on Network Economics |
| By: | James McAndrews; Zhu Wang |
| Abstract: | This paper provides a theory of payment industry dynamics, in which we focus on the monetary nature of payment devices and consider an alternative microfoundation for the two-sided market approach. In a competitive economy, the adoption of an emerging payment method is determined by the distribution of consumer incomes and firm sizes, and the change of consumer income, adoption cost, and card-industry market structure each have important influence on payment pricing and usage dynamics. Our findings suggest that both the increasing concentration of payment card network and the growth of consumer income relative to card service costs may help explain the puzzles surrounding payment card interchange fees. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkpw:psrwp06-01&r=net |
| By: | Walter E. Beyeler; Robert J. Glass; Morten L. Bech; Kimmo Soramaki |
| Abstract: | We develop a parsimonious model of the interbank payment system to study congestion and the role of liquidity markets in alleviating congestion. The model incorporates an endogenous instruction arrival process, scale-free topology of payments between banks, fixed total liquidity that limits banks' capacity to process arriving instructions, and a global market that distributes liquidity. We find that at low liquidity, the system becomes congested and payment settlement loses correlation with payment instruction arrival, becoming coupled across the network. The onset of congestion is evidently related to the relative values of three characteristic times: the time for banks' net position to return to zero, the time for banks to exhaust their liquidity endowments, and the liquidity market relaxation time. In the congested regime, settlement takes place in cascades having a characteristic size. A global liquidity market substantially diminishes congestion, requiring only a small fraction of the payment-induced liquidity flow to achieve strong beneficial effects. |
| Keywords: | Payment systems ; Bank liquidity ; International liquidity |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:259&r=net |
| By: | De Borger Bruno (University of Antwerp); Dunkerley Fay (K.U.Leuven-Center for Economic Studies); Proost Stef (K.U.Leuven-Center for Economic Studies; UCL - CORE) |
| Abstract: | The purpose of this paper is to compare the interaction between pricing and capacity decisions on simple serial and parallel transport networks. When individual links of the network are operated by different regional or national authorities, toll and capacity competition is likely to result. Moreover, the problem is potentially complicated by the presence of both local and transit demand on each link of the network. We bring together and extend the recent literature on the topic and, using both theory and numerical simulation techniques, provide a careful comparison of toll and capacity interaction on serial and parallel network structures. First, we show that there is more tax exporting in serial transport corridors than on competing parallel road networks. Second, the inability to toll transit has quite dramatic negative welfare effects on parallel networks. On the contrary, in serial transport corridors it may actually be undesirable to allow the tolling of transit at all. Third, if the links are exclusively used by transit transport, toll and capacity decisions are independent in serial networks. This does not generally hold in the presence of local transport. Moreover, it contrasts with a parallel setting where regional authorities compete for transit; in that case, regional investment in capacity leads to lower Nash equilibrium tolls. |
| Keywords: | congestion pricing, transport investment, transit traffic |
| JEL: | H23 H71 R41 R48 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:ete:etewps:ete0607&r=net |
| By: | Iain M. Cockburn; Megan J. MacGarvie |
| Abstract: | We examine the effects of software patents on entry and exit in 27 narrowly-defined classes of software products, using a dataset with comprehensive coverage of both mature public firms and small privately held firms between 1994 and 2004. Reflecting the complex economics underlying the relationship between patent protection, entry costs and industry structure, we find that patents have a mixture of effects on entry and exit. Controlling for firm and market characteristics, firms are less likely to enter product classes in which there are more software patents. However, all else equal, firms that hold software patents are more likely to enter these markets. The net effect on entry of increasing the number of software patents is difficult to measure precisely: estimates of the effect of an across-the-board 10% increase in patent holdings on the number of entrants into the average market in this sample range from -5% to +3.5%, with quite large standard errors. Evidence on exit and survival is consistent with these findings - holding patents appears to enhance the survival prospects of firms after entering a market. |
| JEL: | L1 L6 O34 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12563&r=net |
| By: | Andrew Ching; Fumiko Hayashi |
| Abstract: | Card payments have been growing very rapidly. To continue the growth, payment card networks keep adding new merchants and card issuers try to stimulate their existing customers’ card usage by providing rewards. This paper seeks to analyze the effects of payment card rewards programs on consumer payment choice, by using consumer survey data. Specifically, we examine whether credit/debit reward receivers use credit/debit cards relatively more often than other consumers, if so how much more often, and which payment methods are replaced by reward card payments. Our results suggest that (i) consumers with credit card rewards use credit cards much more exclusively than those without credit card rewards; (ii) even among those who carry a credit card balance, consumers with credit card rewards use a credit card more often than those without rewards; (iii) among consumers who receive credit card rewards, those who receive credit card rewards as well as debit card rewards tend to use debit cards more often than those who receive credit card rewards only; and (iv) reward card transactions seem to replace not only paper-based transactions but also non-reward card transactions. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkpw:psrwp06-02&r=net |