Following the Introduction, which surveys existing literature on the technology advances and regulation in telecommunications and on two-sided markets, we address specific issues on the industries of the New Economy, featured by the existence of network
effects. We seek to explore how each one of these industries work, identify potential
market failures and find new solutions at the economic regulation level promoting social
welfare.
In Chapter 1 we analyze a regulatory issue on access prices and investments in the
telecommunications market. The existing literature on access prices and investment has
pointed out that networks underinvest under a regime of mandatory access provision with
a fixed access price per end-user. We propose a new access pricing rule, the indexation
approach, i.e., the access price, per end-user, that network i pays to network j is function
of the investment levels set by both networks. We show that the indexation can enhance
economic efficiency beyond what is achieved with a fixed access price. In particular, access
price indexation can simultaneously induce lower retail prices and higher investment and
social welfare as compared to a fixed access pricing or a regulatory holidays regime.
Furthermore, we provide sufficient conditions under which the indexation can implement
the socially optimal investment or the Ramsey solution, which would be impossible to
obtain under fixed access pricing. Our results contradict the notion that investment
efficiency must be sacrificed for gains in pricing efficiency.
In Chapter 2 we investigate the effect of regulations that limit advertising airtime on
advertising quality and on social welfare. We show, first, that advertising time regulation
may reduce the average quality of advertising broadcast on TV networks. Second, an
advertising cap may reduce media platforms and firms' profits, while the net effect on
viewers (subscribers) welfare is ambiguous because the ad quality reduction resulting from
a regulatory cap o¤sets the subscribers direct gain from watching fewer ads. We find that
if subscribers are sufficiently sensitive to ad quality, i.e., the ad quality reduction outweighs
the direct effect of the cap, a cap may reduce social welfare. The welfare results suggest
that a regulatory authority that is trying to increase welfare via regulation of the volume
of advertising on TV might necessitate to also regulate advertising quality or, if regulating
quality proves impractical, take the effect of advertising quality into consideration.
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In Chapter 3 we investigate the rules that govern Electronic Payment Networks (EPNs).
In EPNs the No-Surcharge Rule (NSR) requires that merchants charge at most the same
amount for a payment card transaction as for cash. In this chapter, we analyze a three-
party model (consumers, merchants, and a proprietary EPN) with endogenous transaction
volumes and heterogenous merchants' transactional benefits of accepting cards to assess
the welfare impacts of the NSR. We show that, if merchants are local monopolists and
the network externalities from merchants to cardholders are sufficiently strong, with the
exception of the EPN, all agents will be worse o¤ with the NSR, and therefore the NSR
is socially undesirable. The positive role of the NSR in terms of improvement of retail
price efficiency for cardholders is also highlighted
