Why Don’t Most Merchants Use Price Discounts to Steer Consumer Payment Choice?

Recent legislation and court settlements in the United States allow merchants to use price discounts to steer customers to pay with means of payment that are less costly to merchants. We use transaction data to compute rough estimates of the expected net cost reduction by merchant type of giving debit card and cash price discounts. We find that steering consumers to debit and cash via simple price discounts reduces most merchants’ card processing cost; however, this reduction is small and may be insufficient to offset the increase in the cost of administering price menus that vary by payment instrument.     

Are long‐term incentive plans an effective and efficient way of motivating senior executives?

Research on senior executive reward has typically explored the connection between pay, performance and the alignment of interests of executives and shareholders. This article examines the relationship between reward and motivation, drawing on the psychological, behavioural economics and decision‐making literatures. Based on an empirical study of FTSE 350 senior executives, the research examines whether long‐term incentive plans are an effective and efficient way of motivating executives, taking into account risk, time discounting, uncertainty and fairness. The article concludes that the way executives frame choices, perceive value, assess probability, evaluate temporal effects and respond to uncertainty means that long‐term incentive plans (LTIPs) are generally not efficient and are often not effective in meeting their objectives. It proposes that, in its current form, agency theory does not provide a sound basis for modelling senior executive reward, and suggests five areas for development.     

Environmental Quality and Social Equality:

Abstract . The problems and contradictions which arise when an economically “poor” region is mandated to remain environmentally “pure“ are examined. The Adirondack region of New York State is such an area, being now protected by the 1972 Adirondack Park Land Use Plan. This limitation on development for environmental reasons has serious consequences for the 120,000 permanent residents within the park boundaries who, through their legislators, vigorously opposed the controls. A number of examples of the conflicts which have arisen are cited and a framework for “comprehensive” rather than “fragmented”planning is suggested.     

History-based price discrimination and entry in markets with switching costs: A welfare analysis

We analyze history-based price discrimination in an asymmetric industry, where an incumbent, protected by switching costs, faces an entrant who does not have access to information about consumers’ purchase histories. We demonstrate that consumer surplus is higher with uniform pricing than with history-based price discrimination. We find that the entry decision is invariant to whether the incumbent implements history-based pricing or uniform pricing. This implies that the potential abuse of market dominance imposed by history-based price discrimination is exploitation, not exclusion. Finally, we establish that the profit gain to the incumbent from history-based pricing exceeds the associated loss to consumers.     

Liquidity provision and optimal bank regulation

We extend the set of regulatory instruments for banks' liquidity provision by adding a policy instrument for controlling the fraction of perfectly-liquid accounts. We demonstrate how this instrument induces self-selection on behalf of depositors who are differentiated according to their probability of facing a liquidity shock. This self-selection leads to a market segmentation, which can break the bundling of deposits with liquidity risk and, thereby, enhance welfare. The optimal regulatory policy is explicitly characterized as a function of banks' investment return, and of depositors' gain from early withdrawals to fund a realized investment opportunity.     

Code-sharing Agreements and Interconnections in Markets for International Flights

The paper investigates the consequences of code‐sharing agreements among airline firms competing on international routes, where some passengers interconnect to flights originating or terminating at cities not served by foreign airlines. The authors calculate the precise market share captured by flights operated under code sharing. They compare airfares, market shares, profits, and passengers’ welfare before and after the implementation of a code‐sharing agreement and demonstrate that code sharing is Pareto‐improving.     

Assessing market dominance

We propose a new measure to assess market dominance. Contrary to concentration measures such as the Herfindahl–Hirschman index that characterizes the concentration of an industry, our dominance measure suggests an approach that classifies when an individual firm has a dominant position. In our measure, the criterion for dominance is relaxed as the intensity of existing competition increases or as entry barriers are lowered. We apply the dominance measure to a number of well-known competition cases.     

Publishers, artists, and copyright enforcement

This paper investigates whether and to what extent there is a conflict of interest between artists and their publishers, regarding to whether and to what degree illegal distributions of their copyrighted recordings should be prevented. This conflict arises because artists also earn their profit from other market activities such as giving live performances, in addition to their share of profits from sales of their copyrighted recordings via the publishers.     

Market Structure and Risk Taking in the Banking Industry

We demonstrate that the common view according to which an increase in competition leads banks to increased risk taking fails to hold in an environment where homogeneous loss averse consumers can choose in which bank to make a deposit based on their knowledge of the riskiness incorporated in the banks outstanding loan portfolios. With an exclusive focus on imperfect competition we find that banks incentives for risk taking are invariant to a change in the banking market structure from duopoly to monopoly. Finally, we show that deposit insurance would eliminate the gains from bank competition when banks use asset quality as a strategic instrument.revised version received October 15, 2003     

Consumer Use of Multiple Payment Methods

Review of Industrial Organization - This article investigates the degree to which buyers choose to diversify their use of payment methods for in-person purchases. Some buyers use only one payment...