/pdf/the-theory-of-industrial-organization-19bejph0ej.pdf

The Theory of Industrial Organization

In a dynamic model of moral hazard, competition can undermine prudent bank behavior. While capital-requirement regulation can induce prudent behavior, the policy yields Pareto-inefficient outcomes. Capital requirements reduce gambling incentives by putting bank equity at risk. However, they also have a perverse effect of harming banks' franchise values, thus encouraging gambling. Pareto-efficient outcomes can be achieved by adding deposit-rate controls as a regulatory instrument, since they facilitate prudent investment by increasing franchise values. Even if deposit-rate ceilings are not binding on the equilibrium path, they may be useful in deterring gambling off the equilibrium path.

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Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?

At a local Best Buy, a child places a new Sony PlayStation 3 on the cashier’s counter while the parents dig out their Visa card. The gaming system and the payment card may appear to have little connection other than this purchase. However, these two items share an important characteristic that is generating a series of economic insights and has important implications for strategic decision making and economic policymaking. Both video game systems and payment cards are examples of two-sided markets. Broadly speaking, a two-sided market is one in which 1) two sets of agents interact through an intermediary or platform, and 2) the decisions of each set of agents affects the outcomes of the other set of agents, typically through an externality. In the case of a video game system, the intermediary is the console producer—Sony in the scenario above—while the two sets of agents are consumers and video game developers. Neither consumers nor game developers will be interested in the PlayStation if the other party is not. Similarly, a successful payment card requires both consumer usage and merchant acceptance, where both consumers and merchants value each others’ participation. Many more products fit into this paradigm, such as search engines, newspapers, and almost any advertisersupported media (examples in which consumers often negatively value, rather than positively value, the participation of the other side), as well as most software or title-based operating systems and consumer electronics. Malls which seek retailers and consumers, convention organizers which seek buyers and sellers, dating services which seek men and women, and The Journal of Economic Perspectives which seeks content and readership, all experience the economics of two-sided markets. The multi-sided nature of many Internet and high-technology markets, as well as

/pdf/the-economics-of-two-sided-markets-9fq1lq9tda.pdf

The Economics of Two-Sided Markets

The recent financial crisis has highlighted the need to go beyond a purely micro approach to financial regulation and supervision. As a consequence, the number of policy speeches, research papers and conferences that discuss a macro perspective on financial regulation has grown considerably. The policy debate is focusing in particular on macroprudential tools and their usage, their relationship with monetary policy, their implementation and their effectiveness. Macroprudential policy has recently also attracted considerable attention among researchers. This paper provides an overview of research on this topic. We also identify important future research questions that emerge from both the literature and the current policy debate.

/pdf/macroprudential-policy-a-literature-review-54icqxy2zp.pdf

Macroprudential policy – a literature review

Blockchains are tamper evident and tamper resistant digital ledgers implemented in a distributed fashion (i.e., without a central repository) and usually without a central authority (i.e., a bank, company, or government). At their basic level, they enable a community of users to record transactions in a shared ledger within that community, such that under normal operation of the blockchain network no transaction can be changed once published. This document provides a high-level technical overview of blockchain technology. The purpose is to help readers understand how blockchain technology works.

/pdf/blockchain-technology-overview-1pzysspzpy.pdf

Blockchain Technology Overview

This paper develops an economic framework to analyze the exchange rate of virtual currency. Three components are important. First, the actual use of virtual currency to make payments. Second, the decision of forward-looking investors to buy virtual currency (thereby effectively regulating its supply). Third, the elements that jointly drive future consumer adoption and merchant acceptance of virtual currency. The model predicts that, as virtual currency becomes more established, the exchange rate becomes less sensitive to the impact of shocks to speculators' beliefs. This undermines the notion that excessive exchange rate volatility will prohibit widespread usage of virtual currency.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2767609_code1529275.pdf?abstractid=2767609&mirid=4

On the Value of Virtual Currencies

After safety, the efficiency of a nation's payment system is a primary concern of central banks. Since electronic payments are typically cheaper than paper-based or cash payments, pricing these transactions should speed up the shift to electronics. But by how much? Norway explicitly priced point-of-sale and bill-payment transactions and rapidly shifted to electronic payments, while the Netherlands experienced a similar shift without pricing. Controlling for terminal availability and differences between countries, direct pricing accelerated the shift to electronics by about 20 percent. The quid pro quo was the elimination of bank-float revenues.

/pdf/transaction-pricing-and-the-adoption-of-electronic-payments-2lwpri1th6.pdf

Transaction Pricing and the Adoption of Electronic Payments: A Cross-Country Comparison

Heavily skewed pricing in two-sided markets

There are numerous ways to indicate the degree of banking competition across countries. Antitrust authorities rely on the structure-conduct-performance paradigm while academics prefer price mark-ups (Lerner index) or correlations of input costs with output prices (H-statistic). These measures are not always strongly correlated within or across countries. Frontier efficiency analysis is used to devise an alternative indicator of competition and rank European countries by their dispersion from a “competition frontier”. The frontier is determined by how well payment and other costs explain variations in loan-deposit rate spread and non-interest activity revenues. Overall, differences in competition appear to be small.

Bank competition efficiency in Europe: A frontier approach

This article surveys the recent theoretical literature on payment cards (focusing on debit and credit cards) and studies this research's possible implications for the current public policy debate over payment card networks and the pricing of their services for both consumers and merchants.

Wilko Bolt

Papers

On the Value of Virtual Currencies

Transaction Pricing and the Adoption of Electronic Payments: A Cross-Country Comparison

Heavily skewed pricing in two-sided markets

Bank competition efficiency in Europe: A frontier approach

Economics of Payment Cards: A Status Report