Open Entry and Local Telephone Rates: The Economics of IntraLATA Toll Competition

The Telecommunications Act of 1996 removes state-level legal and regulatory barriers to entry that previously have proscribed facilities-based interchange carriers from entering intraLATA toll markets. Traditionally, these markets have provided excess profits that local exchange companies ostensibly have used to subsidize local telephone rates. Elimination of these entry barriers, then, raises concern that the resulting intensification of competition will force unwanted local residential rate increases. In this paper, we critically examine the local-rate-increase question both theoretically and empirically. Our analysis finds no evidence that intraLATA toll competition will adversely affect local rates.     

Facilities to service based competition,not service to facilities based,for broadband penetration: A comparative study between the United States and South Korea

As a fundamental infrastructure in the Era of Information, a broadband network has a significant impact on democracy, economy, and society, indicating the importance of policy to increase broadband penetration. Considering the characteristics of broadband as a network, many governments introduced service-based competition, which is assumed to lower entry barriers by allowing entrants to lease incumbents' facilities, as a stepping stone to facilities-based competition.Questioning this unidirectional approach, the present study examines how the direction of policy implementation, that is service- to facilities-based versus facilities- to service-based, affects broadband diffusion. Through the case study of the U.S. and South Korea which experienced both modes of competition in opposing temporal sequences, this research concludes that facilities- to service-based competition might contribute to higher and faster broadband diffusion than service- to facilities-based competition. Rather than impose unbundling obligations against incumbents, facilities-based competition with financial support of the government to entrants seems to induce an earlier peak in broadband penetration. Additionally, consistent commitment of the government enforcement appears to be critical in implementing service-based competition.Though limited to the cases of the U.S. and Korea, this study suggests that service-based competition may be neither a necessity to facilitate broadband diffusion nor a precondition to introduce facilities-based competition. Moreover, service-based competition policy can function to deter overbuild of facilities and lessen the financial burden of broadband service providers if adopted after an initial period of facilities-based competition policy, which includes government investment in broadband facilities, that seems to help promote competition and give incentives to construct networks.Contrary to the literature, the present study raises a new perspective of the role of service-based competition as an enhancer for service quality and that of facilities-based competition with government investment as a booster of early and rapid broadband diffusion.     

The competitive effects of resale versus facility-based entry: evidence from the long-distance market

This paper examines the ability of entry by either resellers or facilities-based carriers to discipline the pricing behavior of a vertically integrated incumbent supplier. Theoretical considerations suggest that, once a sufficient amount of entry has occurred at both vertical stages—transmission and retail functions—additional entry at either stage can push final output toward the competitive level. Under these conditions, entry at either stage may serve as a gross complement or substitute for entry at the other stage. Data from the interLATA telecommunications market are used to test the relevant hypotheses. Our findings are not expected to be directly applicable to the local exchange and electricity markets as those markets are currently constituted. When these industries begin to exhibit structural characteristics that resemble the long-distance market, however, our findings should become relevant there as well.     

企业内部市场定价:基于行为的理论模型

本文从行为的视角探讨内部市场定价问题。根据内部市场主体之间的合作、竞争行为提出并界定了内部市场结构的概念，将内部市场划分为简单型、合作主导型、竞争主导型、复合型四种结构类型；通过分析企业战略、内部定价对内部市场主体之间合作、竞争行为的影响，得出了企业战略决定内部市场结构应然、内部定价调节内部市场结构实然的结论：以内部市场结构的实然与应然相一致为原则．构建了企业内部市场定价的理论模型，阐述了在各种内部市场结构应然要求下的内部定价方法、决策权安排、绩效考核标准和激励机制等。     

Maximizing the adoption of fixed number portability within the EU: An empirical analysis

Number portability (NP) is considered by the European Commission as a key measure for promoting competition within the telecom sector especially regarding network access infrastructure. However, NP requires several modifications to the network architecture and to the business processes of each operator that, depending on network size, may result in a significant financial cost. This is true for fixed networks in particular. Given the requirement for such an investment, National Regulatory Authorities (NRAs) desire a clear picture on what to expect, in terms of progress in access competition, when introducing fixed NP in their respective markets. The paper approaches this question by correlating several fixed telephony market indices related to access competition to the degree of success of fixed NP. Relevant analysis based on European Union member states’ data indicates that fixed NP does not significantly contribute to local loop unbundling (LLU) adoption in markets where there are other access technologies available. In these markets, access competition via these other technologies and fixed NP initially achieve similar penetration rates. Consequently, when access competition exceeds a certain threshold and given a reasonable pricing regime then fixed NP is further boosted to include broadband connections based on several broadband technologies/methodologies such as LLU and cable as well as existing narrowband access technologies (e.g. narrowband cable connections). In markets where LLU is the only alternative for access then the rate of Fixed NP adoption is directly correlated with the success of LLU. Consequently, these conclusions are considered within a high-level stepwise approach for NP implementation, which is based on the experience acquired from the respective Greek national project.     

A CDS approach to induce facilities-based competition over NGA networks

The current regulatory framework in the European NGA market provides the basic principles for the gradual migration from service-based competition over the legacy copper access networks to facilities-based competition over fiber-based Next Generation Access (NGA) networks. This paper initially reviews the related literature and shows that: (i) an unbundling policy that boosts entry by alternative operators promotes service-based competition but provides operators with disincentives to invest in network upgrade; (ii) there is no consensus about the optimal regulatory policy that promotes competition and encourages investments in NGA networks; and (iii) the reviewed research articles are not consistent with the current regulatory framework in the European NGA market in terms of both the evolution of the regulatory goals over time and the recommended regulatory settings. This paper aims to propose a novel approach in order to effectively meet the current regulatory goals using the recommended settings. It is shown that the proposed approach, which is based on the basic principles governing a Credit Default Swap (CDS), provides an effective migration path towards facilities-based competition over NGA networks.     

Upward pricing pressure in two-sided markets: Incorporating rebalancing effects

In two-sided markets it is important to consider rebalancing effects following a merger, i.e. the impact of a change in margin on one side of the market, either due to a price change or to efficiency gains, on the pricing incentives on the other side. We propose modified versions for the indices of pricing pressure (UPP and GUPPI) that take this into account. We show that in two-sided markets where the cross-group externalities are positive the upward pricing pressure will typically be overstated if the rebalancing effect is ignored. Our approach explains why competition agencies should look at both sides of the market when assessing platform mergers.     

Platform Pricing at Sports Card Conventions

We study a new data set of U.S. sports card conventions from the perspective of the pricing theory of two‐sided markets. Conventions are two‐sided because organizers must set fees to attract both consumers and dealers. We present several findings: first, consumer pricing decreases with competition, but pricing to dealers is insensitive to competition and in longer distances even increases with competition. Second, when consumer price is zero (and thus constrained), dealer price decreases more strongly with competition. These results are compatible with existing models of two‐sided markets, but are difficult to explain without such models.     

International telephony revenue settlement reform

The method preferred by the majority of carriers for revenue settlement in international telephony is the Accounting Revenue Division Procedure (ARDP). It was developed for a monopoly environment, and it is becoming less suitable in an increasingly competitive global environment. This paper presents a model to relate the ARDP to revenue settlement in a free economy. We conclude that, in general, cost-oriented accounting rates cannot exist, that symmetrical settlement rates are likely to benefit carriers of developed countries, and that policies intended to adapt the ARDP to a competitive environment, cannot succeed unless it is recognized that accounting rate reductions must go hand in hand with the modification of the 50/50 revenue sharing principle of the ARDP.     

Dynamic oligopoly pricing: Evidence from the airline industry

We explore how pricing dynamics in the European airline industry vary with the competitive environment and with customer heterogeneity. We document three main findings. First, the rate at which prices increase towards the scheduled departure date is significantly reduced in more competitive markets. Second, the sensitivity of the intertemporal slope to competition increases in the heterogeneity of the customer base. Third, ex-ante predictable advance purchase discounts account for 83 percent of within-flight dispersion in prices and for 17 percent of cross-market variation in pricing dynamics.     

FOB or Uniform Delivered Prices: Strategic Choice and Welfare Effects

In spatial markets firms typically use either FOB (mill) or uniform delivered (UD) pricing. What competitive factors motivate this choice and what are the welfare implications of the choice? We study these questions in a duopsony market, where farmers with unit elastic supply curves sell to processing firms. In results that differ considerably from prior work, we show that the equilibrium price policy depends upon the extent of competition in the market, with FOB pricing emerging under very competitive structures and UD pricing emerging under less competition. Mixed FOB‐UD pricing may also emerge in equilibrium. In most cases welfare is higher under UD than FOB pricing.     

The imbalances of telephone traffic for the United States

The US posts a large and growing deficit in international telephone services, a phenomenon often blamed on the accounting rate system. Using data for international calls between the US and 148 foreign destinations between 1991 and 1997, this paper finds that the increasing payment deficit for the US is associated with decreasing accounting rates. In other words, the international revenue settlement is related more to imbalances in telephone traffic than to accounting rates. The econometric model shows that growing asymmetries in teledensity, market concentration, and income levels between the US and the rest of the world explain the imbalances. Therefore, the appropriate solution to the payment deficit in telephone services is to focus on long-term economic factors that determine the flow of traffic.     

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.     

Technological and geographic heterogeneity in broadband markets: The challenge for regulation

When the telecommunications industry was liberalised in Europe and North America in the 1980s and 1990s, it inherited a legacy of monopoly providers whose footprint was national or multi-regional in its character. The regulatory framework, particularly that adopted in EU member states, reflected this pattern of relatively homogeneous deployment achieved, in part, by decades of cross-subsidised pricing and universal service goals. Perhaps because of this legacy, telecommunications regulators have often adopted the presumption that relevant markets are national in character, unless proven otherwise Although geographically-variegated regulatory remedies have been permitted (even in the face of allegedly national relevant markets) and adopted in many member states, many regulators have never done so, and overly cautious thresholds for permitting geographically based forbearance suggest a continued bias towards presuming national markets and remedies. We find that this presumption of uniformity and the tendency to aggregate geographic markets together is not supported by first principles of antitrust analysis, although there may have been strong practical reasons to apply this presumption in the past circumstances of the telecommunications and broadband industries.On the ground, however, there has arguably never been as much heterogeneity across geographies and across technological solutions that provide effective ultra-fast broadband speeds. Both technological (i.e., product market) and geographic heterogeneity are likely to increase with the advent of mobile 5G networks. With their deployment, a cautious regulatory stance towards geographic variation and a cautious regulatory stance towards inter-technology or inter-modal competition may result in regulation that could exceed what is required to ensure effective competition and could instead distort the incentives to enter of facilities-based actors. This may also result in higher-cost and inefficient investment. A more geographically varied and technologically agnostic regulatory framework may satisfy the principle of proportionate and focused regulation—with the possibility that the locus of regulation shifts from the access network to bottleneck facilities such as fibre, ducts and poles.This discussion is especially germane when one considers the highly speculative nature of forecasts and projections about future demand, and the competing claims of proponents of 5G and fibre. While there is some scepticism about the performance of mobile networks, we note that pure mobile and fixed 5G services may have synergies in deployment, and that the idea of competing with residential broadband services is a core strategy of very influential large-scale industry actors. In terms of a future research agenda, regulatory decisions could benefit from much more research into the relationship between domestic and global bandwidth constraints and their influence on development of software and application, as well as much more quantitative research by academics on the drivers of bandwidth demand. The risks associated with promoting investment that results in large-scale wasted resources should also be central to the regulatory agenda.     

Strategic Substitutes and Strategic Complements With Interdependent Demands

Strategic substitutes and complements have become standard tools of analysis in industrial organization. Bulow et al. (1985) original model which introduced these concepts focused on multimarket oligopoly. Building upon that model, this paper shows that there becomes not one but two strategic interaction terms if the demands between markets is interdependent and the firms compete in prices. This new model is applied to the telecommunications industry, where the local exchange carriers face competition from competitive access providers. The theoretical model shows the critical variables in the local exchange carriers' strategic pricing decision.     

Multimarket contact and sales growth: evidence from insurance

Research on pricing, profits, and firm survival has shown that multimarket contact causes mutual forbearance against competition, but has not considered the consequences of imperfect observability of competitive moves. Here, predictions are developed to explain how mutual forbearance occurs—but sometimes fails—in markets with imperfect observability. Mutual forbearance means that firms do not seek to take market share from each other through price cuts or nonprice competition, and thus that sales grow at uniform rates. Firms defect from mutual forbearance, and hence have higher sales growth, if the potential rewards are high and the likelihood of being discovered is low. This theory is tested on a panel of firms operating in the Norwegian general insurance industry. The evidence suggests that sales growth is most rapid in firms that do not meet many multimarket competitors in a given market and firms that are economically troubled. Growing or highly concentrated markets have higher heterogeneity of growth rates. Copyright © 2007 John Wiley & Sons, Ltd.     

Vertical relations,pass-through,and market definition: Evidence from grocery retailing

We examine how different pass-through rates from input prices to retail prices and different vertical contracts affect upstream market definition. Simple theoretical considerations suggest that vertical restraints induce higher pass-through rates and thus lead to a larger upstream market definition when compared to linear wholesale pricing, given that contracts with linear pricing are associated with lower pass-through rates under imperfect competition. Data from grocery retailing is used to quantify the empirical implications of our theoretical assertion. We find that resale price maintenance leads to larger upstream market definitions than linear pricing. We therefore advise competition authorities to carefully model vertical market structures, whenever they expect incomplete pass-through to be important.     

银行卡定价理论的新发展--兼论对我国银行卡POS交易价格形成机制的启示

本文通过对银行卡定价理论新发展以及国外POS交易价格的研究．结合我国银行卡产业发展的实际情况。对我国银行卡POS交易价格形成机制进行了研究。研究表明：银行卡产业具有的双边市场特征和网络外部性特征使得银行卡POS交易的定价将是成本、竞争、双边市场需求等多种因素的综合反映。就中国银行卡产业发展现状而言，我国银行卡POS交易定价应该与国际接轨．由现有的单一定价模式转变为三级差别定价和二级差别定价相结合的差别定价模式。差别定价模式有利于建立科学合理的利益分配体系，促进和保障银行卡产业的持续健康稳定发展。     

Commercial Mortgage-Backed Securities (CMBS) and Market Efficiency with Respect to Costly Information

Commercial mortgage-backed securities (CMBS) are complex asset-backed securities trading in markets that do not currently use derivatives pricing technology. This lack of usage is due to the complexity of the modeling exercise, and only the recent and costly availability of historical data. As such, CMBS markets provide a natural environment for the testing of market efficiency with respect to this costly information. Using this information, this article develops a CMBS pricing model to provide a joint test of the model and market efficiency. Backtesting our pricing model for 4 years, although there is some evidence of abnormal trading profits, we cannot reject the efficiency of the CMBS markets.     

Is exclusionary pricing anticompetitive in two-sided markets?

This paper studies the competitive effects of exclusionary pricing in two-sided markets. While formally showing that below-cost pricing on one market side can allow an incumbent firm to exclude a potential rival which does not have a customer base yet, the proposed model does not necessarily imply that below-cost pricing in such markets should be taken as anti-competitive conduct. Instead, I find that in sufficiently asymmetric two-sided markets, exclusion is always beneficial and if anything, there is too little of it in the sense that there are cases in which there is inefficient entry. Further, prohibiting below marginal cost pricing may destroy some socially efficient exclusion and worsen the problem of excessive (or inefficient) entry.