Accueil > Forum > No.61 - Competition in two-sided markets: Application to information and communication industries

No.61 - Competition in two-sided markets: Application to information and communication industries

DigiWorld Economic Journal - C&S - 31/03/2006 No.61 - Competition in two-sided markets: Application to information and communication industries

1st Quarter 2006

This is the study of situations whereby one or several platforms facilitate interactions between users on two different sides of a market. This new method of analysis may encourage some competition authorities and regulators to reconsider the functioning of ICT markets and incite decision-makers to think about the industry strategies to be implemented.

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Competition in two-sided markets: Application to information and communication industries

Edited by Marc BOURREAU & Nathalie SONNAC


A Strategic Guide on Two-Sided Markets Applied to the ISP Market

Retail Payment Systems: What can we Learn from Two-Sided Markets?
Marianne VERDIER

Mobile Call Termination: a Tale of Two-Sided Markets

Impact of Mobile Usage on the Interpersonal Relations
AeRee KIM & Hitoshi MITOMO

Interview with
, Vice Chairman of LECG Europe

Other papers

Municipal Wi-Fi Networks:
The Goals, Practices, and Policy Implications of the US Case

François BAR & Namkee PARK

The EU Regulatory Framework for Electronic Communications: Relevance and Efficiency Three Years Later

Modelling Scale and Scope in the Telecommunications Industry: Problems in the Analysis of Competition and Innovation


Regulation and Competition
• Competitive compliance: streamlining the Regulation process in Telecom & Media
  Gérard POGOREL

Firms and Markets
• The world broadband access market

Technical Innovations
• Instant messaging: Towards a convergent multimedia hub
  Vincent BONNEAU

Use Logics
• Mobile CE - The nomadic era
  Laurent MICHAUD

Book Review
• Peter HUMPHREYS & Seamus SIMPSON, Globalisation, Convergence and European Telecommunications Regulation,
  by Zdenek HRUBY
• Byung-Keun KIM, Internationalizing the Internet - The co-evolution of Influence and Technology,
  by Bruno LANVIN
• Bethany McLEAN & Peter ELKIND, The Smartest Guys in the Room: 
  The Amazing Rise and Scandalous Fall of Enron,
  by James ALLEMAN
• Peggy VALCKE, Robert QUECK & Eva LIEVENS, EU Communications Law 
  - Significant power in the mobile sector,
  by Petros KAVASSALIS
• Summary

A Strategic Guide on Two-Sided Markets Applied to the ISP Market
Key words: Platform, externalities, price allocation, competition policy.

This paper looks at a new body of literature that deals with two-sided markets and focuses on the Internet Service Provider (ISP) segment. ISPs seem to act as a platform enabling transactions between web sites and end consumers. We propose a strategic guide for ISPs that covers features of two-sided markets such as strong externalities and discuss how these market characteristics can affect competition policy.

Marianne VERDIER
Retail Payment Systems: What can we Learn from Two-Sided Markets?
Key words: payment systems, two-sided markets, platform competition, payment cards.

Some retail payment systems can be modelled as two-sided markets, where a payment system facilitates money exchanges between consumers on one side and merchants on the other. The system sets rules and standards, to ensure usage and acceptance of its payment instruments by consumers and merchants respectively.
Some retail payment systems exhibit indirect network externalities, which is one of the main criteria used to define two-sided markets. As more consumers use the payment platform, more merchants are encouraged to join it. Conversely, the value of holding payment instruments increases with the number of merchants accepting them. The theory of two-sided markets contributes to a better understanding of these retail payment systems, by showing that an asymmetric allocation of costs is needed to maximise the volume of transactions. It also starts to offer results that could explain competition between payment platforms.
However, this theory entails some limits to a thorough understanding of retail payment systems. Firstly, we show that some retail payment systems, such as credit transfer or direct debit systems, do not necessarily fulfil all the theoretical criteria used to define two-sided markets. Moreover, this theory does not take into account specific features of the payment industry, such as risk management or fraud prevention. This leads us to propose new research directions.

Mobile Call Termination: a Tale of Two-Sided Markets
Key words: mobile telephony, market definition and call termination

Mobile telephony is described as a "two-sided" market where customers are seen as senders and receivers of communications that are mutually beneficial both to callers and receivers. This has implications in terms of market definition and market power. The economics of mobile call termination is discussed in this context.

Impact of Mobile Usage on the Interpersonal Relations
AeRee KIM and Hitoshi MITOMO
Key words: mobile telephone calls, text messaging, Seoul, Taipei, Tokyo, communication, younger generation, relationship and covariance structure analysis.

Communication via mobile telephones is widespread in East Asian metropolis such as Seoul, Taipei and Tokyo. In the last ten years, the number of mobile telephone users has increased dramatically, with the younger generation in particular depending on the services available via mobile telephones. This paper explores the relationship between the voice and text messaging communications of these young consumers through their mobile telephones and their interpersonal relations. It analyses how mobile telephone usage affects relationships between respondents by comparing models of the cause-effect relationship of several latent factors in different environments, namely dependency on mobile telephone communication, perception of friendships, individual factors and IT literacy. By applying a covariance structure analysis, the correlations between latent and observable variables can be successfully visualized. The results show that mobile telephones have little influence on the perception of relationships among the younger generation, although somewhat different structures of interdependency exist in these metropolitan areas.

François BAR & Namkee PARK
Municipal Wi-Fi Networks: The Goals, Practices, and Policy Implications of the U.S. Case

Key words: municipal wireless, internet policy.

This paper explores three broad questions about municipal Wi-Fi networks in the U.S.: why are cities getting involved, how do they go about deploying these networks, and what policy issues does this new trend raise? To explain municipal involvement, the paper points out that cities have both the means to provide relatively inexpensive deployment and the motives to provide wireless connectivity to city employees, foster the economic development of communities and offer universal and affordable broadband services to residents. The paper then explores nine possible business models, ordered according to two questions: who owns the network and who operates it. Each of the possible business models is described and its policy implications are discussed. Finally, the paper addresses the political and legal fight over the right of cities to build these networks. The authors argue in conclusion that the current municipal Wi-Fi movement should be allowed to proceed without federal restrictions.

The EU Regulatory Framework for Electronic Communications:
Relevance and Efficiency Three Years Later
Key words: Regulatory governance structure, transaction costs and temporal specificity.

In 2002 the European Union implemented a new regulatory framework to oversee electronic communications services and networks across Europe. Three years down the line, the multiplicity of players and the quasi-contractualisation of their relations through the Framework Directive have complicated European regulatory governance structure. Is the implementation of the new regulatory framework relevant and efficient? This paper uses transaction costs to try and find an answer to this question.

Modelling Scale and Scope in the Telecommunications Industry:
Problems in the Analysis of Competition and Innovation
Key words: scale and scope; modelling; innovation and competition

A theory of scale and scope that takes into account the endogenous nature of technology and the contextual manner in which systems architecture and functionality are shaped by market structures requires an alternative approach to modelling and analysis. Following on from "A new view of scale and scope in the telecommunications industry; implications for competition and innovation" (BOURDEAU et al., 2005) , we apply the concepts of embeddedness, integration and competition to show how the current models can be improved. We also show how the many-layered "network of networks" can be evaluated

James ALLEMAN is a professor in the College of Engineering and Applied Science, University of Colorado, Boulder. In the fall of 2005 Dr. Alleman was a visiting scholar at IDATE in Montpellier, France; previously, he was a visiting professor at the Graduate School of Business, Columbia University, and director of research at Columbia Institute of Tele-Information (CITI). Professor Alleman continues his involvement at CITI in research projects as a senior fellow. He has also served as the director of the International Center for Telecommunications Management at the University of Nebraska at Omaha, director of policy research for GTE, and an economist for the International Telecommunication Union. Dr. Alleman was also the founder of Paragon Service International, Inc., a telecommunications call-back firm and has been granted patents (numbers 5,883,964 & 6,035,027) on the call-back process widely used by the industry.

François BAR is Associate Professor of Communication in the Annenberg School for Communication at the University of Southern California. He directs the Annenberg Research Network on International Communication. Prior to USC, he held faculty positions at Stanford University and at the University of California at San Diego. Since 1983, he has been a member of the Berkeley Roundtable on the International Economy (BRIE), at UC Berkeley, where he previously served as program director for research on telecommunications policy and information networking. He has held visiting faculty appointments at the University of Toronto, the University of Paris-XIII, Théséus, and Eurécom. His current research interests include comparative telecommunication policy, as well as economic, strategic and social dimensions of computer networking, new media and the internet.

Audrey BAUDRIER is President of Study group I in the Development Sector of the International Telecommuncations Union (ITU), that deals with telecommunications policies and national regulatory strategies. Affiliated to the Research Centre ATOM of the University Paris I Pantheon-Sorbonne, her research focuses on the political economy of regulation and the governance of public service network markets.

Vincent BONNEAU is a Senior Consultant in the Marketing and Forecasting Department of IDATE. He is mainly in charge of the impact of the software industry on the telecom markets. Prior to IDATE, Vincent BONNEAU worked for the French Trade Commission (Economic Department of the Embassy of France) in San Francisco as an analyst in charge of the software industry. He has also worked for marketing departments at several telecommunication companies including NOOS (French leading cable operator), Wanadoo and France Telecom. Vincent graduated from Ecole Polytechnique (1997) and from Ecole Nationale Supérieure des Télécommunications (2002). He also holds a MS from HEC in IT Management (2002

Alain BOURDEAU de FONTENAY teaches in the department of economics at Queen's College, City University of New York and is senior research fellow at the Columbia Institute for Tele-Information. He has written extensively on telecommunications economics and has worked at Bell Laboratories, the Canadian telecommunications regulator. He is also a cofounder of de Fontenay, Savin and Kiss, an international consulting firm. His current work focuses on concepts of markets and other forms of exchange relations, especially in ICTs. He holds a doctorate from Vanderbilt University.

Marc BOURREAU is an assistant professor in the Department of Economics and Social Sciences at Ecole Nationale Supérieure des Télécommunications (ENST, Paris). He is also a research associate in the laboratory of industrial economics (LEI) at the Center for Research in Economics and Statistics (CREST). Prior to joining the ENST faculty, Professor Bourreau worked for France Télécom (1997-2000) as a regulatory economist. He received a master's degree in engineering science from ENST. He also holds a Ph.D. in economics from Université Paris 2 Panthéon-Assas and an "habilitation à diriger des recherches"  from Université Paris 1 Panthéon-Sorbonne. His main research interests are economic and policy issues relating to broadcasting, telecommunications and the internet. He has published several articles on these topics in journals such as The European Economic Review, Information Economics and Policy, Telecommunications Policy, Revue Economique and Revue d'Economie Politique.

Thomas CORTADE completed his PhD in economics at the University of Montpellier 1 (France) in 2005. His main research interests are industrial organization, regulation and competition policy applied to network industries, and more precisely to the ISP market. He recently published a paper on the impact of ISP mergers on welfare in the journal Economie et Prévision.

David EVANS is an authority on the economics of high-technology and platform-based businesses, primarily as they relate to competition policy and intellectual property. He is the author of four books and over 70 articles in journals ranging from the American Economic Review and Foreign Affairs to The Yale Journal on Regulation. His many opinion pieces have appeared in newspapers worldwide including the Washington Post, Wall Street Journal, Financial Times, Les Echos and El Pais. A specialist on competition policy in the U.S. and European Union, he has served as an expert and testified before courts, arbitrators, regulatory authorities and legislatures in the U.S. and Europe. He has led economic analysis in several important antitrust cases over the last 25 years including U.S. v AT&T. Most recently, Dr. Evans led an international economic team on a landmark series of cases involving a large global technology firm in the U.S. and Europe. Since September 2004 he has been visiting professor of competition law and economics at University College, London. He has a Ph.D. from the University of Chicago. He is also co-author of Paying with Plastic (MIT Press, 2005), which is considered by many as "the definitive account of the trillion-dollar payment card industry".

Zdenek HRUBY is Deputy Minister of Finance in the Czech Republic, where he is responsible for international relations, privatizations and revitalization. He is also the Czech Republic's national coordinator of EU programmes, governmental coordinator for negotiations regarding the state aid to the banking sector and a member of the statutory bodies of several companies. In an academic capacity, Mr. Hruby presently teaches at the Institute of Economic Studies at the Charles University in Prague and at the Czech Technical University in Prague. He has also been a guest lecturer at several other universities including London Business School, the University of Cambridge and Institut für Wirtschaftsforschung Halle. Zdenek Hruby graduated in cybernetics from the Czech Technical University in Prague, of Electrical Engineering and completed postgraduate studies in economics.

Petros KAVASSALIS is one of the founders of the MIT Internet Telecommunic¬ations Convergence Consortium MIT-ITC. Currently, he is the Director of the ATLANTIS Group at the University of Crete. Petros Kavassalis holds a degree in Civil Engineering from the National Technical University of Athens and a Ph.D. from Dauphine University in Paris (Economics and Management). In the past, he worked as a Researcher at the Ecole polytechnique, Paris (Centre de Recherche en Gestion, Laboratoire d'Econometrie) and at MIT (Research Programme on Communications Policy at CTPID). His interests focus on the fields of information management & e-business, information economies and the emergence of organizational patterns on the Web and mobile applications and services.

AeRee KIM is a PhD student at the Graduate school of Global Information and Telecommunication Studies at the Waseda University, Tokyo, Japan. She holds a Masters in Global Information and Telecommunication from the Waseda University. AeRee Kim has been a guest research officer at NTT Cyber Communication Laboratory Group since 2005. In recent years, she has received various scholarships and was a fellow of the Rotary Foundation Scholarship. Her research interests mainly focus on information and telecommunications economic analysis and the effect of information on society.

A World Bank senior advisor on e-strategies, Bruno LANVIN has occupied senior positions at the World Bank (Manager of the Information for Development Program (infoDev), and Executive Secretary of the G-8 DOT Force), and in the United Nations (Head of Electronic Commerce in UNCTAD, Chief of Cabinet of the Director General of the UN). Author of a significant number of articles and books on international trade, the 'e-economy', knowledge and innovation, he has an MA (Mathematics and Physics), and MBA (HEC) and a PhD in Economics (La Sorbonne).

As part of the "Industrial Analyses" Department of IDATE, Loïc LE FLOCH has specialised on telecom industry development in countries of the Middle East and North Africa region, in particular on regulatory and technical issues. He is also in charge of surveys concerning the broadband access market (DSL, cable, fibre optic). Prior to joining IDATE, Loïc worked for French telecommunications operator Neuf Telecom and carried out various researches related to the deployment of Neuf Telecom's network. He graduated as engineer, holder of a diploma of the National Institute of Telecommunications (INT-2001).

Jonathan LIEBENAU teaches in the department of management in the information systems group at the London School of Economics and Political Science. He is also affiliated with the Columbia Institute for Tele-Information, Columbia University Graduate School of Business. He has published articles on high technology businesses, fundamental concepts of information and technology policy. His current research focuses on the use of ICTs in business and the telecommunications industry and regulation in Europe, the USA and Central Asia. He holds a doctorate from the University of Pennsylvania.

Laurent MICHAUD joined IDATE in February 2000 as a consultant in the "Media Economics" department. His skills cover the fields of economic and financial analysis and evaluation, statistical data processing, computer-assisted simulation systems, short and mid-term forecasts and database management. Laurent Michaud is in charge of IDATE's multi-client digital entertainment studies. He carries out expert missions on video games issues, and also contributes to strategic, sector-based market reports. He was head of Research at Montpellier University of Economics' research laboratory, Le Centre d'Études et de Projets and holds a post-graduate professional degree (D.E.S.S.) in Economic and Financial Project Engineering.

Hitoshi MITOMO is Professor of Telecommunications Economics at the Graduate school of Global Information and Telecommunication Studies, Waseda University, Tokyo, Japan. Before joining the GITS faculty, he was an associate professor (1992-1998) and a professor (1998-2000) of Transportation and Telecommunication Economics at Senshu University. Since1992, he has been a guest research officer at the Institute for Posts and Telecommunications Policy, Ministry of Posts and Telecommunications (MPT). He has served as a member of the Telecommunications Council of the Japanese Government and on several committees in the MPT. Hitoshi Mitomo graduated from Yokohama National University with a BA in Management Science and holds a Masters in Environment Science from the University of Tsukuba. He is a doctoral student at the Institute of Socio-Economic planning, University of Tsukuba, and received his PhD in Engineering from Toyohashi University of Technology.

Namkee PARK is a doctoral student at the Annenberg School for Communication, University of Southern California. His studies and research focus on communication technology and policy, as well as information/media economics. Before coming to USC, he studied at Michigan State University (MA, Telecommunication) and Yonsei University, Seoul, Korea (BA & MA, Mass Communication). He is currently working on his dissertation project, which examines the deployment of municipal Wi-Fi networks.

Gérard POGOREL is Professor of Economics and Management, Ecole Nationale Supérieure des Télécommunications (ENST, Paris). He published numerous articles, books and reports. He acted as evaluator, auditor and reviewer for the NSF, Harvard Business Review, Research Policy and EU research programmes in Information and Communications Technologies. He has been a frequent member of monitoring committees (composed of independent experts) of the EU Framework Research Programme, Chair of the Monitoring Panel for 2000-2001, Chair of the Monitoring Committee of the European Union Information Society and Technologies Research Programme  for 2001-2002. He participates in the international panel of experts for the World Competitiveness Yearbook (IMD, Lausanne) since 1996. He is a member of the Board of Directors of the International Telecommunications Society (ITS).

David SEVY is a principal in the European Competition Policy Group of LECG and heads the Paris team. David has advised clients on a wide variety of competition policy issues, covering diverse sectors. He graduated from Ecole Polytechnique (1986) and received his Ph.D. in economics from Ecole Polytechnique (1993). After a post-doc at AT&T Bell Laboratories (1994), David worked for France Télécom (1994-1999) as senior regulatory economist. He then joined McKinsey & Company in Paris, from 1999 to 2002, where he was involved in numerous strategy and management projects for telecommunications, high technology and pharmaceuticals companies. David's academic research focuses mainly on theoretical and applied industrial economics, especially on topics relevant for competition in the telecommunications industry. He is currently Adjunct Professor of Economics at Ecole Polytechnique, where he teaches business and antitrust economics. He is also co-author of the recently published textbook Economie de l'entreprise (Editions de l'Ecole Polytechnique).

Nathalie SONNAC who was awarded a PhD in economics, is an associate professor at the University Paris II and a researcher at CARISM and CREST/LEI. She obtained in 2004 an "Habilitation à diriger des recherches" in Information & Communication Sciences. Her research focuses on media economics (press, TV broadcasting and the internet) and the information economy. Her publications include: Economie de la presse, with Patrick Le Floch (2nd Ed. La Découverte, coll. Repères, 2005); L'industrie des medias, with Jean Gabszewicz (Ed. La Découverte, coll. Repères, 2006); and several articles in refereed journals.

Tommaso VALLETTI is Professor of Economics at Imperial College London (U.K.) and University of Rome "Tor Vergata" (Italy). He is a research fellow at the Centre for Economic Policy Research (CEPR, London) and a research affiliate of the Global Consortium for Telecommunications (London Business School). Professor Valletti is also a member of the panel of academic advisors to Ofcom, the U.K. communications regulator and served as a board director of Consip, the Italian Public Procurement Agency from 2002 to 2005. He has advised numerous bodies, including the European Commission, the OECD, and the World Bank on topics such as network interconnection, mobile termination and spectrum auctions. He is the editor of Information Economics & Policy, associate editor of the Journal of Industrial Economics, and a member of the advisory board of both the Journal of Network Industries and COMMUNICATIONS & STRATEGIES. He has published numerous articles in various journals.

Marianne VERDIER is a PhD student in economics at Ecole Nationale Supérieure des Télécommunications de Paris (ENST). She also works for "le Groupement des Cartes Bancaires", CB. A former student of HEC (2004), she also graduated from the research master APE (Campus Paris Jourdan) and from the ENSAE (Ecole Nationale de la Statistique et de l'Administration Economique) in 2005. In 2001 and 2002, she participated in risk management projects conducted by two French banks.




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