nep-pay New Economics Papers
on Payment Systems and Financial Technology
Issue of 2016‒10‒09
twelve papers chosen by
Bernardo Bátiz-Lazo
Bangor University

  1. Native Advertising, Sponsorship Disclosure and Consumer Deception: Evidence from Mobile Search-Ad Experiments By Sahni, Navdeep S.; Nair, Harikesh S.
  2. Is information diffusion a threat to market power for financial access? Insights from the African banking industry By Simplice Asongu; Enowbi Batuo; Jacinta Nwachukwu; Vanessa Tchamyou
  3. Overview of Financial Inclusion, Regulation, and Education By Yoshino, Naoyuki; Morgan, Peter J.
  4. Broadband Mergers and Dynamic Bargaining: An Application to Netflix By Daniel Goetz
  5. Bitcoin Literature: A Co-word Analysis By John Liu
  6. Does Advertising Serve as a Signal? Evidence from Field Experiments in Mobile Search By Sahni, Navdeep S.; Nair, Harikesh S.
  7. Substitution and Complementarity between Fixed-line and Mobile Access By Chengsi Wang; Julian Wright
  8. How Do Complementors Respond to the Threat of Platform Owner Entry? Evidence from the Mobile App Market By Wen Wen; Feng Zhu
  9. Personal Values of Internet Users: A Cluster Analytic Approach By Edo Rajh; Jelena Budak; Mateo Zokalj
  10. Seeding the S-Curve? The Role of Early Adopters in Diffusion By Christian Catalini; Catherine Tucker
  11. The Role of Rating and Loan Characteristics in Online Microfunding Behaviors By Gaurav Paruthi; Enrique Frias-Martinez; Vanessa Frias-Martinez
  12. Personalization in Email Marketing: The Role of Non-informative Advertising Content By Sahni, Navdeep S.; Wheeler, S. Christian; Chintagunta, Pradeep

  1. By: Sahni, Navdeep S. (Stanford University); Nair, Harikesh S. (Stanford University)
    Abstract: Recent advances in advertising technology have lead to the development of "native advertising", which is a format of advertising that mimics the other non-sponsored content on the medium. While advertisers have rapidly embraced the format on a variety of digital media, regulators have expressed serious concerns about whether this format materially deceives consumers when the advertising disclosure is incomplete or inappropriate. This has reignited a longstanding debate about the distinction between advertising and content, and how it affects consumers. This paper contributes to this debate by providing empirical evidence from randomized experiments conducted on native advertising at a mobile restaurant-search platform. We experimentally vary the format of paid-search advertising, the extent to which ads are disclosed to over 200,000 users, and track their anonymized browsing behavior including clicks and conversions. Our research design uses comparisons of revealed preferences under experimentally manipulated treatment and control conditions to assess the potential for consumer confusion and deception. A design based on revealed preference is important to speaking to the "material" standard of regulators, and to assessing "confusion" while avoiding direct questioning of consumers. We find that native advertising benefits advertisers, and detect no evidence of deception under typically used formats of disclosure currently used in the paid-search marketplace. Further investigation shows that the incremental conversions due to advertising are not driven by users clicking on the native ads. Rather, the benefits from advertising are driven by users seeing the ads and later clicking on the advertiser's "organic" listings. Thus, we find little support of typical native advertising "tricking" users and driving them to advertisers. Users seem to view ads and deliberately evaluate the advertisers. Overall, our results imply the incentives of the platform, advertisers and regulators with respect to disclosure are aligned: consumers value the clear disclosure regulators demand, and it benefits advertisers and improves monetization for the platform.
    Date: 2016–02
  2. By: Simplice Asongu (Yaoundé/Cameroun); Enowbi Batuo (University of Westminster, UK.); Jacinta Nwachukwu (Coventry University, UK.); Vanessa Tchamyou (Yaoundé, Cameroon)
    Abstract: This study assesses how information diffusion dampens the adverse effect of market power on the price and quantity of loans provided by a panel of 162 banks from 39 African countries for the period 2001-2011. The empirical evidence is based on three endogenity-robust estimation techniques, namely: (i) Two Stage Least Squares (2SLS), (ii) Generalised Method of Moments (GMM) and (iii) Instrumental Variable Quantile Regressions (QR). Three key results emerge. First, from the GMM results, a mobile phone penetration rate of 54.29, rising to 57 per 100 people are predicted to neutralise the adverse effect of market power on the average loan price and quantity respectively. Second, from the QR, mobile phone penetration rates of 56.20, 52.04 and 42.76 per 100 people is needed to nullify the negative effect of market power on loan quantity at the 0.10th, 0.25th and 0.90th quintiles respectively. Third, a considerably lower internet penetration rate of 9.49 per 100 people is required to counteract the negative impact of market power on loan quantity at the 0.90th quintile.
    Keywords: Financial access; Market power; Information asymmetry; ICT; Africa
    JEL: G20 G29 L96 O40 O55
    Date: 2016–10
  3. By: Yoshino, Naoyuki (Asian Development Bank Institute); Morgan, Peter J. (Asian Development Bank Institute)
    Abstract: Financial inclusion is receiving increasing attention as having the potential to contribute to economic and financial development while at the same time fostering more inclusive growth and greater income equality. However, although substantial progress has been made, there is still much to achieve. East Asia and the Pacific and South Asia combined account for 55% of the world’s unbanked adults, mainly in India and the People’s Republic of China (PRC). This paper surveys the experience of a number of advanced and Asian emerging economies to assess factors affecting the ability of low-income households and small firms to access financial services, including financial literacy, financial education programs and financial regulatory frameworks, and identify policies that can improve their financial access while maintaining financial stability. It aims to identify successful experiences and important lessons that can be adopted by other emerging economies. This analysis is based on studies of the experiences of Germany, the United Kingdom, Bangladesh, India, Indonesia, the Philippines, Sri Lanka and Thailand. The study aims to take a practical and holistic approach to issues related to financial inclusion. For example, innovative methods of promoting financial access, such as mobile phone banking and micro-finance, require corresponding innovations in regulatory frameworks, perimeters and capacity. Moreover, programs in the areas of financial education and consumer protection are needed to enable households and small firms to take full advantage of improvements in financial access.
    Keywords: financial inclusion; banks; financial regulation; payments systems; small and medium-sized enterprises; financial education
    JEL: G21 G28 I22 O16
    Date: 2016–10–04
  4. By: Daniel Goetz (Princeton University, Department of Economics, Fisher Hall, Princeton, NJ, 08540)
    Abstract: I measure how mergers in the market for broadband internet service affect short-run welfare. Mergers between internet service providers (ISPs) with non-overlapping markets may decrease welfare by increasing ISP bargaining leverage against content providers. However, study of this welfare channel has been stymied by a lack of data on interconnection fees between content and internet service providers. I estimate an industry model of demand, plan choice, pricing and interconnection bargaining using data on plan prices, consumer choice sets and bargaining delays between major U.S ISPs and the leading purveyor of streaming video content, Netflix. Intuitively, if delaying agreement over interconnection degrades quality of service to subscribers, then the opportunity cost of lost subscriptions identifies the fee. To map disagreement times and ISP competition into interconnection fees, I develop a multilateral dynamic bargaining model with asymmetric information. ISPs make take-it-or-leave it offers to learn about Netflix's benefit from interconnection, while simultaneously competing for subscribers who value Netflix quality of service. I structurally estimate the model and recover fixed interconnection fees ranging from 44 to 69 million USD. I find that a proposed merger between TimeWarner and Comcast that was challenged by the Federal Communications Commission would have slightly raised interconnection fees and bargaining length, reducing consumer welfare by 1.9 percent.
    Keywords: mergers; streaming video; dynamic games of incomplete information; two-sided markets;
    JEL: C7 L41 L96
    Date: 2016–09
  5. By: John Liu (National Taiwan University of Science and Technology)
    Abstract: A technical article in 2008 and the follow-up open-source software in 2009 released by Satoshi Nakamoto have modified the concept of currency and seem to continue affecting our economic and financial thinking. In less than 8 years, bitcoin, a digital currency, is not only accepted as a mean of payment but also traded in numerous ‘bitcoin exchanges’, which have accumulated a market capitalization of around 10.7 billion U.S. dollar. The phenomenon raised the interest of scholars across wide disciplines including finance, economics, law, and computer science. Research articles regarding bitcoin has gradually formed a growing body of literature, which reflects the state of the art of bitcoin research. However, there is no systematic survey of this literature up to now. The purpose of this study is to fill the gap by systematically surveying the bitcoin literature in the hope to uncover the main discussion topics and made suggestions for future research. We collect a total of 253 articles directly related to bitcoin from the Scopus database. In addition to providing basic descriptive statistics of this dataset, we apply co-word analysis to separate the literature into groups. This is done by establishing a network in which articles are nodes and co-usage of the key terms links these articles. The network is then separated into groups based on nodes’ similarity in their connectivity. The result is a division of the articles into three groups each contain distinct discussion topics. The first group is a pool of technological articles which elaborates on improving various aspects of bitcoin technology. The second group focuses on bitcoin’s impacts to existing financial system and real economy. The discussions in the third group call for a legal framework to regulate bitcoin and other digital currency. In the end, we model the bitcoin research in a PEST (political, economic, social, and technological) analysis structure and suggest that the influence of bitcoin and the associated technology on society as a whole is a big gap waiting to be filled in future research.
    Keywords: bitcoin, digital currency, cryptocurrency, literature survey, co-word analysis
    JEL: G00 E50 K40
  6. By: Sahni, Navdeep S. (Stanford University); Nair, Harikesh S. (Stanford University)
    Abstract: In a large-scale field experiment, we demonstrate that advertising can serve as a signal that enhances consumers' evaluations of advertised goods. We implement the experiment on a mobile search platform that provides listings and reviews for an archetypal experience good, restaurants. In collaboration with the platform, we randomize more than 200,000 consumers into exposure or no exposure of ads for about 600+ local restaurants. In conditions in which consumers are exposed to advertising, we also randomly vary the disclosure to the consumer of whether a restaurant's listing is an ad. This enables us to isolate the effect on outcomes of a consumer knowing that a listing is sponsored--a pure signaling effect. We find that this disclosure alone increases calls to the restaurant by 77%, holding fixed all other attributes of the ad. This effect is higher when the consumer uses the platform away from his typical city of search, when the uncertainly about restaurant quality is larger, and for restaurants that have received fewer ratings in the past. Further, on the supply side, newer, higher rated and more popular restaurants advertise more on the platform. Taken together, we interpret these results as consistent with a signaling equilibrium in which ads serve as implicit signals that enhance the appeal of the advertised restaurants. Both consumers and firms seem to benefit from the signaling. Consumers shift choices systematically towards restaurants that are better rated (at baseline) in the disclosure condition compared to the no disclosure condition, and advertisers gain from the improved conversion induced by disclosure. Further, our results imply that search-platforms would gain from clear sponsorship disclosure, and thus holds implications for platform design.
    Date: 2016–02
  7. By: Chengsi Wang (Department of Economics, University of Mannheim, L7 3-5, Mannheim, 68131, Germany); Julian Wright (Department of Economics, National University of Singapore, 10 Kent Ridge Crescent, 119260, Singapore)
    Abstract: Platforms use price parity clauses to prevent sellers charging lower prices when selling through other channels. Platforms justify these restraints by noting they are needed to prevent free-riding, which would undermine their incentives to invest in their platform. In this paper, we study the effect of price parity clauses on three different types of platform investment, and evaluate these restraints taking into account these investment effects. We find, that wide price parity clauses lead to excessive platform investment while without such price parity clauses there is insufficient platform investment. Even taking these investment effects into account, wide price parity clauses always lower consumer surplus and often lowers total welfare.
    Keywords: search, vertical restraints, intermediation, investment
    JEL: D40 L11 L14 L42
    Date: 2016–10
  8. By: Wen Wen (University of Texas at Austin, McCombs School of Business, 2110 Speedway, Austin, TX 78712); Feng Zhu (Harvard University, Harvard Business School, Morgan Hall 431, Boston, MA 02163)
    Abstract: How do complementors respond to the threat of platform owner entry, and how do such responses differ from the responses to actual entry? Using the mobile platform Android as our research setting, we examine how app developers on Android adjust their rate and direction of innovation efforts and prices in response to Google’s entry threat and actual entry into to the app markets. Based on a difference-indifferences empirical framework, we find that app developers that are affected by Google’s entry reduce their innovation efforts on affected apps after entry threats increase; after Google’s actual entry, they reduce innovation efforts on affected apps further and also increase these apps’ prices. However, we find that affected app developers do not withdraw from the platform completely—once the threat occurs, they shift innovation efforts from affected apps to other unaffected apps, as indicated by an increase in updates on unaffected apps during both the entry-threat and actual-entry period.
    Keywords: platform owner entry; entry threat; innovation; mobile app industry
    JEL: L11 L86 O32
    Date: 2016–09
  9. By: Edo Rajh (The Institute of Economics, Zagreb, Croatia); Jelena Budak (The Institute of Economics, Zagreb, Croatia); Mateo Zokalj (Student)
    Abstract: Values are an important topic that has received significant scholarly attention from various academic disciplines. The theoretical framework used for individual values research is Schwartz’s value theory that defines ten basic values: power, achievement, hedonism, stimulation, self-direction, universalism, benevolence, tradition, conformity, and security. In order to better understand the motivational background of attitudes and behavior of Internet users, the paper explores the structure of their personal values. A large telephone survey in Croatia in 2016 was conducted on a nationally representative sample of 2,060 Internet users. Values were measured with the Short Schwartz’s Value Survey instrument. Internet users are grouped in different value-related groups with K-means cluster analysis. Furthermore, differences among those value-related groups of Internet users are examined with regard to their levels of social trust, computer anxiety, need for privacy online, online privacy concern and demographics. There were three mutually exclusive groups of Internet users found, namely: power-oriented group, self-centered group and self-transcendent group. Significant differences were found among those groups regarding social trust, expressed computer anxiety and need for privacy online. Demographic characteristics in terms of gender, age, education, income, and occupation explain the observed differences among the clusters of Internet users.
    Keywords: values, trust, online privacy, Internet users, Croatia
    JEL: A13 Z13
    Date: 2016–09
  10. By: Christian Catalini (MIT, MIT Sloan School of Management, 100 Main Street, E62-480, Cambridge, MA, 02142, USA); Catherine Tucker (MIT, MIT Sloan School of Management, 100 Main Street, E62-480, Cambridge, MA, 02142, USA)
    Abstract: In October 2014, all 4,494 undergraduates at the Massachusetts Institute of Technology were given access to Bitcoin, a decentralized digital currency. As a unique feature of the experiment, students who would generally adopt first were placed in a situation where many of their peers received access to the technology before them, and they then had to decide whether to continue to invest in this digital currency or exit. Our results suggest that when natural early adopters are delayed relative to their peers, they are more likely to reject the technology. We present further evidence that this appears to be driven by identity, in that the effect occurs in situations where natural early adopters' delay relative to others is most visible, and in settings where the natural early adopters would have been somewhat unique in their tech-savvy status. We then show not only that natural early adopters are more likely to reject the technology if they are delayed, but that this rejection generates spillovers on adoption by their peers who are not natural early adopters. This suggests that small changes in the initial availability of a technology have a lasting effect on its potential: Seeding a technology while ignoring early adopters' needs for distinctiveness is counterproductive.
    Keywords: early adopters; diffusion; adoption; bitcoin; blockchain; digital currencies; MIT; spillover effects
    JEL: O31 O32 O33 D83 G29 L14 M13 M3
    Date: 2016–09
  11. By: Gaurav Paruthi (University of Michigan); Enrique Frias-Martinez (Telefonica Research); Vanessa Frias-Martinez (University of Maryland)
    Abstract: We propose an in-depth study of lending behaviors in Kiva using a mix of quantitative and large-scale data mining techniques. Kiva is a non-profit organization that offers an online platform to connect lenders with borrowers. Their site,, allows citizens to microlend small amounts of money to entrepreneurs (borrowers) from different countries. The borrowers are always affiliated with a Field Partner (FP) which can be a microfinance institution (MFI) or other type of local organization that has partnered with Kiva. Field partners give loans to selected businesses based on their local knowledge regarding the country, the business sector including agriculture, health or manufacture among others, and the borrower.Our objective is to understand the relationship between lending activity and various features offered by the online platform. Specifically, we focus on two research questions: (i) the role that MFI ratings play in driving lending activity and (ii) the role that various loan features have in the lending behavior. The first question analyzes whether there exists a relationship between the MFI ratings - that lenders can explore online - and their lending volumes. The second research question attempts to understand if certain loan features - available online at Kiva - such as the type of small business, the gender of the borrower, or the loan's country information might affect the way lenders lend.
    Date: 2016–09
  12. By: Sahni, Navdeep S. (Stanford University); Wheeler, S. Christian (Stanford University); Chintagunta, Pradeep (University of Chicago)
    Abstract: In collaboration with three companies selling a diverse set of products, we conduct randomized field experiments in which experimentally tailored email messages are sent to millions of individuals. We find consistently that personalizing the emails, while adding no informative content about the product or the company, benefits the advertisers. In our main experiment, we find that adding the name of the message recipient to the email's subject-line increases the probability of the recipient opening it by 20%, which translates to an increase in sales leads by 31% and a reduction in the number of individuals unsubscribing from the email campaign by 17%. We present similar experiments conducted with other companies, which show that the effects we document extend from objectives ranging from acquiring new customers to retaining customers who have purchased from the company in the past. The effects also extend to other content of similar nature. Our investigation of several possible mechanisms suggests that such content increases the attention consumers pay to the other content in the rest of the advertising message. Our paper quantifies the benefits from personalization, and contributes to understanding the role of advertising content. It contributes to the psychology-based research in marketing by establishing the robustness of lab findings in field settings. It has clear implications for the firms that are designing their advertising campaigns.
    Date: 2016–01

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