Net Neutrality and internet fragmentation: The role of online advertising

We investigate the relation between Net Neutrality regulation and Internet fragmentation. We model a two-sided market, where Content Providers (CPs) and consumers interact through Internet Service Providers (ISPs), and CPs sell consumers' attention to advertisers. Under Net Neutrality, a zero-price rule is enforced. By contrast, in the Unregulated Regime, ISPs make access to their subscribers for CPs conditional on payment of a termination fee. Multiple impressions of an ad on the same consumer are partially wasteful. Thus, equilibrium ad rates decrease when audiences overlap. We show that ISPs may strategically set termination fees to induce fragmentation. This takes place when advertising revenues are potentially large but strongly diminished by competition among CPs, and when consumers are not highly sensitive to content availability. We therefore identify an important link between termination fees, the online advertising market and Internet fragmentation. We extend the model to account for multi-homing consumers, vertically integrated ISPs, third-party advertising platforms and heterogeneous CPs.     

Welfare Analysis of Regulating Mobile Termination Rates in the U.K.

We develop a calibrated simulation model of the U.K. mobile telephony market and use it to analyze the effects of reducing mobile termination rates (MTR's) as recommended by the European Commission. We find that reducing MTR's is likely to increase both consumer surplus and networks' profits. Depending on the strength of call externalities (i.e., benefits to the recipient of a call), social welfare may increase by as much as £1 billion to £4.6 billion per year. We also use the model to estimate the welfare effects of the 2010 merger between Orange and T‐Mobile and find that the merger led to a substantial reduction in consumer surplus.     

Subprime Refinancing: Equity Extraction and Mortgage Termination

This article examines the choice of borrowers to extract wealth from housing in the high-cost (subprime) segment of the mortgage market and assesses the prepayment and default performance of these cash-out refinance loans relative to the rate of refinance loans. Consistent with survey evidence, the propensity to extract equity is sensitive to the relative interest rates of other forms of consumer debt. After the loan is originated, our results indicate that cash-out refinances perform differently from non–cash-out refinances. For example, cash-outs are less likely to default or prepay, and the termination of cash-outs is more sensitive to changing interest rates and house prices.     

Competition between multiple asymmetric networks: Theory and applications

This paper presents a tractable model of network competition with many firms, elastic subscriber demand, off-net price discrimination, call externalities, and cost and market share asymmetries. We characterize stability in expectations and equilibrium under firm- and market-level network effects. The model is applied to simulate the effects of termination rates, market maturity, and retail pricing strategies. We show that predictions based on duopoly models can be misleading, in particular concerning the effects of termination rates.     

Network effects and preference heterogeneity in the case of mobile telecommunications markets

This paper demonstrates how revealed- and stated-preference analyses can be used for modeling network effects in the field of mobile telecommunications. The aim of this study was to verify if network effects may still play a role in the Polish mobile telecommunications market, measure their strength, identify their sources and variability across consumers by accounting for consumers' observable and unobservable preference heterogeneity, evaluate their monetary value to consumers, and finally, to verify if the marginal utility associated with network effects is constant. The analysis of consumers' revealed choices (currently used mobile telephone operator) allowed the identification of major differences between customer bases of incumbent and new entrant operators, and insight into the business strategies adopted in the presence of asymmetric regulation of mobile termination rates. The second part of the study—the analysis of the consumers' stated choices (made in carefully prepared and designed hypothetical choice situations, known as the choice experiments) made it possible to directly model consumers' utility functions and, in this way, investigate the nature of network effects in mobile telecommunications markets. From the results, the presence of strong network effects, which are related to the ratio of consumers' social network group using the same operator, and to the magnitude of on-net price discounts, is confirmed. These network effects can be disaggregated to pecuniary and non-pecuniary effects. Through the utilization of the random parameters multinomial logit model, consumers' observable and unobservable preference heterogeneity can be accounted for, which proved a scientifically revealing and potentially policy-relevant approach. The results might be of a particular interest to other researchers aiming at modeling consumers' preferences as well as to mobile telephone operators and regulatory authorities—it is shown that capacity for vigorous price competition between mobile operators is limited by non-price factors, which affect subscriber's choices, especially in the presence of asymmetric mobile termination rates.     

The Effects of Securitization on Consumer Mortgage Costs

We examine the effects of securitization on two dimensions of consumer mortgage costs: coupon rates and loan origination fees. We find no evidence that securitization reduces the coupon rates on fixed- or adjustable-rate mortgages. Instead, securitization appears to lower mortgage loan origination fees, resulting in substantial savings for consumers. Securitization activity includes passthrough creation and collateralized mortgage obligation (CMO) creation. We test for differences between the effects of passthrough and CMO creation on primary mortgage costs. Surprisingly, these activities appear to have indistinguishable effects on loan rates and origination fees, suggesting that a large derivatives market for mortgage loans is not creating value for consumers.     

Vertical integration in the TV market: Exclusive provision and program quality

We study how vertical integration in a media market affects investments in premium content. We show that a content provider provides the premium content exclusively to a platform, regardless of the vertical structure of the industry. However, a vertically integrated content provider has lower incentives to invest in quality than an independent one. With asymmetric platforms, the platform with a competitive advantage in the advertising market obtains the exclusive content, and the content provider invests even less when it is integrated with it. We show that the content provider prefers to merge with the platform with a competitive advantage in the advertising market. Vertical integration reduces both consumer and total surplus. Our results suggest that authorities should carefully assess the effects of vertical mergers on the incentives to invest in content quality, incorporating non-price measures in merger analysis. An intervention at the distribution stage that enforces non-exclusive provision reduces quality and may have adverse effects on consumer and total surplus.     

Who competes with whom? A demand‐based perspective for identifying and representing asymmetric competition

A host of strategic management and marketing issues, including competitive analysis and strategic decision making, hinges on accurately identifying and representing competitive market structures. It is readily acknowledged that competitive market structures are typically asymmetric; namely, one firm may actively compete with another in a given market but not vice versa. However, empirical efforts to assess these competitive asymmetries have been lacking in the strategy literature. We propose a new spatial methodology to identify and represent asymmetric competitive market structures. Specifically, we devise a new stochastic multidimensional scaling procedure that is calibrated from actual consumer consideration/choice sets to estimate and uncover competitive asymmetries. The proposed methodology can be effectively employed in the analysis of appropriate data from either demand‐ or supply‐side approaches to assess competitive market structure. We illustrate our proposed methodology with survey data collected from two different commercial applications: one from the U.S. luxury automobile market and the other from the U.S. portable telephone market. We contrast the findings of the proposed methodology against traditional symmetric approaches for identifying and representing competitive market structures, and discuss the respective strategic insights. Copyright © 2005 John Wiley & Sons, Ltd.     

Curbing obfuscation: Empower consumers or regulate firms?

This paper develops a market model where consumers refrain from buying products that they are unable to understand and a firm can influence the probability of a consumer understanding its offer. In equilibrium, firms artificially increase product complexity, and firms that offer more transparent products choose on average higher prices. We study two sets of public policies. We show that consumer side policies may have the unintended consequence of encouraging obfuscation while firm side policies are always effective in curbing obfuscation. Interestingly, a consumer side policy can even harm consumers when it protects consumers so much that it greatly increases the marginal effectiveness of obfuscation. Policies on both sides can either increase or decrease social welfare depending on the marginal effectiveness and the marginal cost of obfuscation. Our main insights hold in both asymmetric and symmetric obfuscation equilibria.     

Link between termination rates and retail prices in Namibia,Kenya and South Africa

This paper analyses the link between mobile termination rate reductions and retail prices. It draws on in-depth case studies of South Africa, Namibia and Kenya where regulators have reduced termination rates towards the cost of an efficient operator. To varying degrees these have all led to lower retail prices and significant market expansion. While retail prices in both Namibia and Kenya dropped following substantial termination rate reductions, the South African case demonstrates that termination rate reductions are not always passed on to consumers as is hoped by such regulatory interventions. In South Africa, it was only after the second reduction in March 2012 that smaller operators were able to reduce their off-net prices to a level that could tempt the subscribers to dominant operators to switch. All the case studies confirm nevertheless that retail prices do not go up in response to termination rates going down as contended by dominant mobile operators around the world. This is in contrast to a body of literature stating that termination rates and mobile retail prices constitute a two-sided market and that termination rate reductions will lead to a so-called “waterbed effect”.     

Pricing with customer recognition

This article studies the dynamic effects of behaviour-based price discrimination and customer recognition in a duopolistic market where the distribution of consumers' preferences is discrete. Consumers are myopic and firms are forward looking. In the static and first-period equilibrium firms choose prices with mixed strategies. When price discrimination is allowed, forward-looking firms have an incentive to avoid customer recognition, thus the probability that both will have positive first-period sales decreases as they become more patient. Furthermore, an asymmetric equilibrium sometimes exists, yielding a 100–0 division of the first-period sales. As a whole, price discrimination is bad for profits but good for consumer surplus and welfare.     

Ocean Carriers’ Collusion Under Antitrust Immunity: Evidence of Asymmetric Pass-Through

As fuel costs are the largest component of the shipping industry’s operating costs, this study examines whether ocean carriers pass fuel cost increases through to freight rates more quickly than they pass through fuel cost decreases. The focal price collusion theory suggests that such asymmetric pass-through could be a result of collusive behavior because collusion is easier to sustain when costs are falling than when costs are rising. Using a lag-adjustment model as the econometric framework, findings from this study show strong evidence for asymmetric adjustments of the US inbound freight rates in response to fuel cost changes. Such asymmetry persisted after the passage of the Ocean Shipping Reform Act of 1998. Moreover, the findings do not support the consumer search theory as an alternative explanation for the freight rate asymmetry.     

Economics of transgenic herbicide-tolerant canola: The case of western Canada

Canola that is genetically tolerant to specific types of herbicide is now coming on the market. This is one of the first transgenic products to be traded internationally. There are a number of economic and agronomic concerns with the use of this product, ranging from consumer rejection, gene introgression and the environmental effects of herbicide use. This paper analyzes the economic effects of these important issues using economic welfare analysis. We examine the case of canola in western Canada.     

Credit Unions: Fringe Suppliers or Cournot Competitors?

Recent work has demonstrated the competitive relationship between credit unions and banks in consumer financial services. One issue underlying the nature of competition between the two, however, concerns the most appropriate way to model their interactions.Two possible approaches are the dominant-firm price-leadership model and the generalized Cournot model. In the former model, credit unions act as fringe suppliers who are price-takers in a homogeneous product market. In the latter, they possess (limited) market power. Oneway to distinguish the two is by examining the impact of credit union market shares on their pricing, as the two models imply differing effects. Our results are more consistent with the ``credit unions as fringe suppliers' view. Using a pooled cross-section time seriesof 77 small local consumer lending markets throughout the U.S., each with 10 observations over 5 years, the focus is on a loan product ex ante thought to be sold in local markets, unsecured (non-credit card) loans. For this product, increasing credit union market sharesreduces credit union loan rates, consistent with a fringe supplier hypothesis.     

服装市场终端环境发展趋势

消费者对市场终端环境有越来越多的需求,目前的服装市场终端环境与消费者需求还存在差距。本文对消费者需求和市场终端现状进行分析总结,进而总结出市场终端环境的发展趋势,为服装企业在终端营造上提供依据。     

Consumer perceptions and the effects of country of origin labeling on purchasing decisions and welfare

The study develops a general analytical framework of heterogeneous consumer preferences to examine the effects of country of origin labeling (COOL) regulation on consumer purchasing decisions and welfare. We show that while differences in consumer perceptions about COOL information, namely, whether it is viewed as an attribute that differentiates products vertically or horizontally, do not alter the nature of the market and consumer welfare effects of mandatory COOL, the relative strength of consumer preferences for COOL are shown to be important in determining the magnitude of these effects. In addition, our results show that the benchmark used (a no COOL versus a voluntary COOL regime) is critical in evaluating the effects of the policy. We show that, under both horizontal and vertical product differentiation, a change from a no COOL to a mandatory COOL regime decreases (increases) the welfare of consumers with weak (strong) preference for COOL while a change from a voluntary to a mandatory COOL regime leads to an unambiguous loss in consumer welfare.     

The effects of personal information on competition: Consumer privacy and partial price discrimination

This article studies the effects of consumer information on the intensity of competition. In a two dimensional duopoly model of horizontal product differentiation, firms use consumer information to price discriminate. I contrast a full privacy and a no privacy benchmark with intermediate regimes in which the firms can profile consumers only partially. I show that with partial privacy firms are always better-off with price discrimination: the relationship between information and profits is hump-shaped. In particular, competing firms prefer to target consumers with partial but asymmetric information about preferences. Instead, consumers prefer either no or full privacy in aggregate, but the effects of information on individual surplus are ambiguous: there are always winners and losers. Finally, I study the information acquisition incentives of the firms when there is an external data seller. When this upstream data broker holds partially informative data, an exclusive allocation arises. Instead, when data is fully informative, each competitor acquires consumer data but on a different dimension. These findings are relevant for the strategic decisions of firms active in digital markets and contribute to the policy debate surrounding privacy, exclusive access to data and competition.     

Anti‐Competitive Interconnection: the effects of the elasticity of consumers' expectations and the shape of the network effects function

I find that interconnection might cause the market to be less competitive, and might lead to an increase in the price firms charge for their product. Absent interconnection, firms compete for a consumer for two reasons. The first reason is to obtain revenue from selling the product to a consumer (as in the case without network effects). The second reason is that by expanding the network by one more consumer, the product becomes more attractive to all other consumers. Interconnection eliminates the second reason—when firms interconnect, they are no longer concerned with consumers' following the crowd. I show that consumers and society might be worse off from interconnection. I focus on two factors that make the (post‐interconnection) price increase larger: consumer expectations that are highly sensitive to prices and consumers putting a high value on small increases in network size at the equilibrium market shares. Both of these factors make firms highly competitive, but only if the firms' products' networks are not interconnected.     

Bertrand equilibrium with differentiated products considering fixed costs: Korean price regulation in the mobile telephone industry

In some industries such as telecommunications and electricity, the fixed costs are so high that competition is not sustainable without considering the fixed cost in pricing. The sustainability of competition is as important as enhancing competition when an industry is in the transitional period from being a monopoly owned or managed by the government to a competitive market structure driven by the market. A price competition model with asymmetric firms and product differentiation is considered in which firms compete with a normal profit constraint. The constraint is related to the sustainability of competition and can be realized through price regulation. With this constraint, firms gain only normal profit in equilibrium despite the asymmetry, and consumer surplus is maximized. The equilibrium is meaningful in defining the industry performance intended through the regulation. Moreover, the price regulation of the Korean mobile telephone market is considered to discuss any implications of this equilibrium.     

Food scare crises and developing countries: The impact of avian influenza on vertical price transmission in the Egyptian poultry sector

A bivariate smooth transition vector error correction model is applied to monthly poultry price data to analyze the effects that avian influenza has had on price transmission along the Egyptian poultry marketing chain. In order to reflect consumer awareness of the crisis, an avian influenza food scare information index is developed and used within the model as a transition variable. Our results suggest that price adjustments to deviations from the market equilibrium parity depend on the magnitude of the avian influenza crisis. Further these adjustments are found to have very different implications for market equilibrium: during the crisis retailers use their market power to increase marketing margins. In contrast, wholesaler margins are found to decline. Results also suggest that food safety information indices contribute to understanding the economic effects of food scare crises in developing countries.