Yardstick competition as a tool to set the prices of regional natural monopolies is now an established tool. After 30 years of application to the water industry in England and Wales, this article takes a critical look at how yardstick competition has been implemented in the latest Price Review 2019 (PR19). It proposes reforms to ensure that in the next Price Review 2024 (PR24) and/or beyond the efficiency challenges are appropriately set and the degree of information at the regulator’s disposal is maximised.
{"title":"Reform, Not Revolution, is What is Needed Now for Yardstick Competition","authors":"Pietro Crocioni, Mateo Silos Ribas","doi":"10.1515/rne-2024-0019","DOIUrl":"https://doi.org/10.1515/rne-2024-0019","url":null,"abstract":"Yardstick competition as a tool to set the prices of regional natural monopolies is now an established tool. After 30 years of application to the water industry in England and Wales, this article takes a critical look at how yardstick competition has been implemented in the latest Price Review 2019 (PR19). It proposes reforms to ensure that in the next Price Review 2024 (PR24) and/or beyond the efficiency challenges are appropriately set and the degree of information at the regulator’s disposal is maximised.","PeriodicalId":45659,"journal":{"name":"Review of Network Economics","volume":"21 1","pages":""},"PeriodicalIF":0.7,"publicationDate":"2024-08-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141940133","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Social media platforms are content-based platforms in which agents invest efforts to produce and share content while interacting with one another. The central question involves the trade-off between interaction quantity and content quality, and its impact on competition between an incumbent platform with a focal advantage and a high-quality new entrant seeking market entry. The study focuses on an agent’s utility function, examining the interplay between these factors and exploring strategies for platform decision-makers to maximize profits and benefits for their agents. The findings show that a high-quality non-focal platform has a strategic advantage in winning the market when agents prioritize content quality over the quantity of interactions. Policymakers should take into account the quality-driven impact on market efficiency and entry barriers.
{"title":"The Quality of Interactions in Competition Between Social Media Platforms","authors":"Ido Eisdorfer","doi":"10.1515/rne-2023-0068","DOIUrl":"https://doi.org/10.1515/rne-2023-0068","url":null,"abstract":"Social media platforms are content-based platforms in which agents invest efforts to produce and share content while interacting with one another. The central question involves the trade-off between interaction quantity and content quality, and its impact on competition between an incumbent platform with a focal advantage and a high-quality new entrant seeking market entry. The study focuses on an agent’s utility function, examining the interplay between these factors and exploring strategies for platform decision-makers to maximize profits and benefits for their agents. The findings show that a high-quality non-focal platform has a strategic advantage in winning the market when agents prioritize content quality over the quantity of interactions. Policymakers should take into account the quality-driven impact on market efficiency and entry barriers.","PeriodicalId":45659,"journal":{"name":"Review of Network Economics","volume":"67 1","pages":""},"PeriodicalIF":0.7,"publicationDate":"2024-04-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140615700","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Soo Jin Kim, Omar A. Nayeem, Aleksandr Yankelevich
We study price-cap regulation in a market in which a vertically integrated upstream monopolist sells an essential input to a downstream competitor. In the absence of regulation, entry benefits both firms, but may harm downstream consumers because the upstream monopolist can set a high input price that would push downstream prices above the unregulated monopoly level. However, if a regulator caps the incumbent’s upstream and downstream prices, consumers and firms are better off after entry than under a price-cap monopoly. We extend our model to examine the concern that price caps may induce incumbents to forgo cost-reducing investments and dampen entrants’ incentives to self-provision the input.
{"title":"Price-Cap Regulation of Firms That Supply Their Rivals","authors":"Soo Jin Kim, Omar A. Nayeem, Aleksandr Yankelevich","doi":"10.1515/rne-2024-0003","DOIUrl":"https://doi.org/10.1515/rne-2024-0003","url":null,"abstract":"We study price-cap regulation in a market in which a vertically integrated upstream monopolist sells an essential input to a downstream competitor. In the absence of regulation, entry benefits both firms, but may harm downstream consumers because the upstream monopolist can set a high input price that would push downstream prices above the unregulated monopoly level. However, if a regulator caps the incumbent’s upstream and downstream prices, consumers and firms are better off after entry than under a price-cap monopoly. We extend our model to examine the concern that price caps may induce incumbents to forgo cost-reducing investments and dampen entrants’ incentives to self-provision the input.","PeriodicalId":45659,"journal":{"name":"Review of Network Economics","volume":"97 1","pages":""},"PeriodicalIF":0.7,"publicationDate":"2024-02-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139772517","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Beginning with two Hotelling duopolies where demand for the product in each market is independent of demand for the product in the other, the paper examines the price, profit and welfare consequences that result when first one firm in a market merges with a firm in the other market creating a single two-product firm and then the remaining two firms merge – resulting in a duopoly of two-product firms. The paper demonstrates how to compute the equilibrium in each market structure. Assuming that firms cannot commit not to use all the pricing instruments at their disposal, mixed bundling by two-product firms emerges following each merger. While such behavior is a unilateral best response, the equilibrium consequences of these choices end up lowering total profits and welfare compared to the pre-merger markets suggesting that the opportunity to engage in mixed bundling cannot be the sole motivation for such mergers.
{"title":"Mixed Bundling and Mergers","authors":"Daniel R. Vincent","doi":"10.1515/rne-2024-0001","DOIUrl":"https://doi.org/10.1515/rne-2024-0001","url":null,"abstract":"Beginning with two Hotelling duopolies where demand for the product in each market is independent of demand for the product in the other, the paper examines the price, profit and welfare consequences that result when first one firm in a market merges with a firm in the other market creating a single two-product firm and then the remaining two firms merge – resulting in a duopoly of two-product firms. The paper demonstrates how to compute the equilibrium in each market structure. Assuming that firms cannot commit not to use all the pricing instruments at their disposal, mixed bundling by two-product firms emerges following each merger. While such behavior is a unilateral best response, the equilibrium consequences of these choices end up lowering total profits and welfare compared to the pre-merger markets suggesting that the opportunity to engage in mixed bundling cannot be the sole motivation for such mergers.","PeriodicalId":45659,"journal":{"name":"Review of Network Economics","volume":"83 1","pages":""},"PeriodicalIF":0.7,"publicationDate":"2024-02-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139772511","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper, we consider a two-period model of an experience good with a seller (informed player) and a consumer (uninformed player) in each period. In the model, we examine the seller’s decision about offering refunds for online reviews of his products, and each period consumer’s purchasing decision together with the first period consumer’s reviewing decision. Our main interest is whether a high-quality product seller offers a high amount or a low amount of cashback for an online review. We show that a lenient cashback policy for a review can be a signal of high quality of the product. Intuitively, a high-quality seller can offer a higher amount of cashback to a consumer who reviews, whether the review is positive or negative. This separation is possible mainly due to a difference in the second-period profits across types. We also briefly discuss the effect of the conditional review policy fostering fake reviews.
{"title":"A Signaling Theory of the Online Consumer Review Policy","authors":"Jeong-Yoo Kim, Wei Xu","doi":"10.1515/rne-2023-0041","DOIUrl":"https://doi.org/10.1515/rne-2023-0041","url":null,"abstract":"In this paper, we consider a two-period model of an experience good with a seller (informed player) and a consumer (uninformed player) in each period. In the model, we examine the seller’s decision about offering refunds for online reviews of his products, and each period consumer’s purchasing decision together with the first period consumer’s reviewing decision. Our main interest is whether a high-quality product seller offers a high amount or a low amount of cashback for an online review. We show that a lenient cashback policy for a review can be a signal of high quality of the product. Intuitively, a high-quality seller can offer a higher amount of cashback to a consumer who reviews, whether the review is positive or negative. This separation is possible mainly due to a difference in the second-period profits across types. We also briefly discuss the effect of the conditional review policy fostering fake reviews.","PeriodicalId":45659,"journal":{"name":"Review of Network Economics","volume":"1 1","pages":""},"PeriodicalIF":0.7,"publicationDate":"2023-12-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138682743","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Access to the internet is critical for participating in modern society, and yet many Americans lack access to high-speed internet. A key objective of U.S. telecommunications policy is to promote policies that advance the availability of quality telecommunications services, with the goal of universal service. I develop a dynamic model of internet service providers’ entry, exit, and upgrade decisions. Estimating this model reveals the determinants of profits and variation in firms’ costs. I then use this information to simulate a variety of subsidy policies, and explore how the use of targeted subsidies can improve high-speed internet access.
{"title":"Investment, Subsidies, and Universal Service: Broadband Internet in the United States","authors":"Kyle Wilson","doi":"10.1515/rne-2023-0066","DOIUrl":"https://doi.org/10.1515/rne-2023-0066","url":null,"abstract":"Access to the internet is critical for participating in modern society, and yet many Americans lack access to high-speed internet. A key objective of U.S. telecommunications policy is to promote policies that advance the availability of quality telecommunications services, with the goal of universal service. I develop a dynamic model of internet service providers’ entry, exit, and upgrade decisions. Estimating this model reveals the determinants of profits and variation in firms’ costs. I then use this information to simulate a variety of subsidy policies, and explore how the use of targeted subsidies can improve high-speed internet access.","PeriodicalId":45659,"journal":{"name":"Review of Network Economics","volume":"124 1","pages":""},"PeriodicalIF":0.7,"publicationDate":"2023-12-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138562718","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
How does a fast lane on the internet affect the entry of online content providers? To answer this question, I provide empirical evidence that connection speed greatly influences consumption of online video and that changes in speed therefore directly impact the entry of video content providers. I also present a framework to think about the incentives of broadband providers to offer a fast lane with access fees which has direct profits effects as well as indirect demand effects. Finally, by combining the empirical model with the theoretical framework in a counterfactual analysis, I show that a fast lane with access fees only increases entry for content providers with high fixed costs of content provision. Using a novel data set on household consumption of online content and broadband penetration in local markets to estimate a structural model of industry demand and supply, this paper is the first to provide empirical evidence on the industry-wide effects of breaking net neutrality.
{"title":"Net Neutrality and Online Innovation: An Empirical Study of the UK","authors":"Laura Nurski","doi":"10.1515/rne-2023-0063","DOIUrl":"https://doi.org/10.1515/rne-2023-0063","url":null,"abstract":"How does a fast lane on the internet affect the entry of online content providers? To answer this question, I provide empirical evidence that connection speed greatly influences consumption of online video and that changes in speed therefore directly impact the entry of video content providers. I also present a framework to think about the incentives of broadband providers to offer a fast lane with access fees which has direct profits effects as well as indirect demand effects. Finally, by combining the empirical model with the theoretical framework in a counterfactual analysis, I show that a fast lane with access fees only increases entry for content providers with high fixed costs of content provision. Using a novel data set on household consumption of online content and broadband penetration in local markets to estimate a structural model of industry demand and supply, this paper is the first to provide empirical evidence on the industry-wide effects of breaking net neutrality.","PeriodicalId":45659,"journal":{"name":"Review of Network Economics","volume":"87 1","pages":""},"PeriodicalIF":0.7,"publicationDate":"2023-11-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138540290","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper we analyse whether having a mobile phone impacts chances of getting employed. We use five waves of panel data from the National Income Dynamic Survey (NIDS), which was conducted in South Africa between years 2008 and 2017. In the estimation we include a vector of observable individual and household characteristics and account for unobserved heterogeneity amongst individuals. The estimation results suggest that mobile phone ownership has a positive impact on the change in employment status from unemployed to employed. On the other hand, ownership of a computer by a household and computer literacy do not increase the likelihood of getting employed. The average probability of becoming employed increases from 54.2 % when no one among unemployed adults has a mobile phone to 57.4 % when all of them have a mobile phone, which is an increase of 5.9 %.
{"title":"The Impact of Mobile Phones on Change in Employment Status in South Africa","authors":"Lukasz Grzybowski, Zubair Maghmood Patel","doi":"10.1515/rne-2022-0008","DOIUrl":"https://doi.org/10.1515/rne-2022-0008","url":null,"abstract":"In this paper we analyse whether having a mobile phone impacts chances of getting employed. We use five waves of panel data from the National Income Dynamic Survey (NIDS), which was conducted in South Africa between years 2008 and 2017. In the estimation we include a vector of observable individual and household characteristics and account for unobserved heterogeneity amongst individuals. The estimation results suggest that mobile phone ownership has a positive impact on the change in employment status from unemployed to employed. On the other hand, ownership of a computer by a household and computer literacy do not increase the likelihood of getting employed. The average probability of becoming employed increases from 54.2 % when no one among unemployed adults has a mobile phone to 57.4 % when all of them have a mobile phone, which is an increase of 5.9 %.","PeriodicalId":45659,"journal":{"name":"Review of Network Economics","volume":"8 1","pages":""},"PeriodicalIF":0.7,"publicationDate":"2023-11-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138540300","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Jeffrey T. Macher, John W. Mayo, Olga Ukhaneva, Glenn A. Woroch
The introduction of a new good (or service) often creates situations in which consumers may choose to consume an extant good, a new good, both goods, or neither. Understanding the evolution and determinants of consumer demand in these situations can be quite important to economic policy formation, and especially so in network industries experiencing the entry of new services. In this study, we draw upon a database of over 180,000 individual household choices of fixed and/or mobile telephone subscriptions over 2003–2010 to improve insight into both the structure and evolution of consumer demand in such portfolio-choice settings. Congruent with our underlying consumer utility model, we find that cellphone service complements household member mobility: Households that are more often “on the go” favor mobile services. We also find the presence of network effects that impact the demand for mobile telephone services. Finally, we find that own- and cross-price elasticities of fixed and mobile telephony services demonstrate marked differences among demographic groups and across income levels.
{"title":"Demand in a Portfolio-Choice Environment: The Evolution of Telecommunications","authors":"Jeffrey T. Macher, John W. Mayo, Olga Ukhaneva, Glenn A. Woroch","doi":"10.1515/rne-2023-0064","DOIUrl":"https://doi.org/10.1515/rne-2023-0064","url":null,"abstract":"The introduction of a new good (or service) often creates situations in which consumers may choose to consume an extant good, a new good, both goods, or neither. Understanding the evolution and determinants of consumer demand in these situations can be quite important to economic policy formation, and especially so in network industries experiencing the entry of new services. In this study, we draw upon a database of over 180,000 individual household choices of fixed and/or mobile telephone subscriptions over 2003–2010 to improve insight into both the structure and evolution of consumer demand in such portfolio-choice settings. Congruent with our underlying consumer utility model, we find that cellphone service complements household member mobility: Households that are more often “on the go” favor mobile services. We also find the presence of network effects that impact the demand for mobile telephone services. Finally, we find that own- and cross-price elasticities of fixed and mobile telephony services demonstrate marked differences among demographic groups and across income levels.","PeriodicalId":45659,"journal":{"name":"Review of Network Economics","volume":"18 1","pages":""},"PeriodicalIF":0.7,"publicationDate":"2023-11-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138540347","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract Buyers are often active on multiple digital platforms, while gatekeeper platforms can force sellers contractually to use one platform exclusively. This paper considers the welfare effects of such exclusivity clauses for buyers, sellers and platforms in a platform duopoly with a seller membership fee. A setting with partially multihoming buyers and sellers is compared to one with partially multihoming buyers and singlehoming sellers. It is shown that exclusivity clauses predominately harm total welfare. Buyers suffer if sellers are exclusive on one platform, while platforms and sellers benefit from exclusivity clauses under certain conditions. In an environment with exclusivity clauses, when strong cross-group benefits and weak platform differentiation result in fierce price competition, exclusivity clauses can be welfare-enhancing.
{"title":"Welfare Effects of Platforms’ Exclusivity Clauses","authors":"Marit Holler","doi":"10.1515/rne-2023-0014","DOIUrl":"https://doi.org/10.1515/rne-2023-0014","url":null,"abstract":"Abstract Buyers are often active on multiple digital platforms, while gatekeeper platforms can force sellers contractually to use one platform exclusively. This paper considers the welfare effects of such exclusivity clauses for buyers, sellers and platforms in a platform duopoly with a seller membership fee. A setting with partially multihoming buyers and sellers is compared to one with partially multihoming buyers and singlehoming sellers. It is shown that exclusivity clauses predominately harm total welfare. Buyers suffer if sellers are exclusive on one platform, while platforms and sellers benefit from exclusivity clauses under certain conditions. In an environment with exclusivity clauses, when strong cross-group benefits and weak platform differentiation result in fierce price competition, exclusivity clauses can be welfare-enhancing.","PeriodicalId":45659,"journal":{"name":"Review of Network Economics","volume":"42 1","pages":""},"PeriodicalIF":0.7,"publicationDate":"2023-09-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82872870","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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