Economic theory suggests that a monopolist can price discriminate more successfully than can a perfectly competitive firm. Most real-life markets, however, fall somewhere in between the two extremes. What happens as the market becomes more competitive: Does price discrimination increase or decrease? This paper examines how price discrimination changes with market concentration in the airline market. The paper uses data on prices and ticket restrictions across various routes within the United States, controlling for distances and airport gate restrictions. Price discrimination is found to increase as the markets become more competitive.
Abstract:We seek to determine the presence and causes of network externalities for the automated clearinghouse (ACH) electronic payments system, using a monthly panel data set on individual bank adoption of ACH. We construct a model of ACH usage that shows how to separately identify network externalities from technological advancement and peer-group effects. We find significant evidence of network effects and find evidence that these network effects are not internalized. Moreover, a large part of these network effects is due to informational problems. Sunk costs of adoption appear to be low.
_________________________We thank Dan Ackerberg, V
Abstract:Since the mid-1990s, the U.S. payment system has been undergoing a paper-toelectronics transformation featuring a significant decline in the number of paper checks written for payment. The timing and magnitude of the transformation have been surprising, and the future direction of payments is quite uncertain, largely because of a lack of data and research that explain why agents choose payment instruments. Using data from new surveys on consumer payment behavior, this paper shows that the large and relatively sudden decline in aggregate check use is not spread evenly among consumers despite the widespread availability of cheaper, more convenient, and better-timed electronic alternatives. Fundamental characteristics of payment instruments -cost, convenience, payment timing, and the like -are much more important determinants of payment choice than demographics or determinants of money demand, and these characteristics raise the cross-section explanatory power of econometric models of payment demand by three-fold or more.
Motivated by recent policy intervention into payments markets, we develop and estimate a structural model of adoption and use of payment instruments by U.S. consumers. Our structural model differentiates between the adoption and use of payment instruments.We evaluate substitution among payment instruments and welfare implications. Cash is the most significant substitute to debit cards in retail settings, whereas checks are the most significant in bill-pay settings. Furthermore, low income consumers lose proportionally more than high income consumers when debit cards become more expensive, whereas the reverse is true when credit cards do.
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