Carmen Matutes

Mix and match : product compatibility without network externalities

In industries where consumers can assemble their own systems, firms must decide whether to make their components compatible with those of their rivals. We examine a two-stage game in which two fully integrated firms make their compatibility decisions before competing in prices. The symmetric perfect Nash equilibrium of this game is shown to involve full compatibility. Although compatibility leads to higher prices than incompatibility, it also increases the variety of systems available so that some consumers are better off with compatibility, while others are hurt. If standardization is costless, compatibility increases social surplus but may decrease consumer surplus.

Imperfect competition, risk taking, and regulation in banking

We develop a model of banking competition which allows us to disentangle the roles that limited liability, deposit insurance (both with flat and risk-based premia), and rivalry for deposits play in determining risk-taking incentives both in the asset and the liability side of the balance sheet. We find that in all market configurations (uninsured or insured) banking rivalry yields excessive deposit rates when social failure costs are high or when competition is intense. Maximal risk-taking incentives (on the liability and asset sides) exist with flat-premium deposit insurance and minimal with risk-based insurance. In an uninsured market risk taking on the asset side is implied by limited liability and the presence of moral hazard (asset risk not observable). With flat-premium deposit insurance maximum risk-taking incentives exist even if there is no moral hazard. Finally, we can extricate the role of rate and asset regulation both in the case of insured and uninsured deposits.

Compatibility and Bundling of Complementary Goods in a Duopoly

This paper presents a simple model of compatibility and bundling in industries where consumers assemble several necessary components into a system that is close to their ideal. The authors show that, for a wide range of parameters, firms will choose to produce compatible components but will offer discounts to consumers who purchase all components from the same firm. However, firms would be better off if they could commit not to provide such discounts. Furthermore, the equilibrium tends to involve socially excessive bundling. Finally, mixed bundling strategies tend to increase the range of parameters over which socially excessive standardization occurs. Copyright 1992 by Blackwell Publishing Ltd.

Shared ATM networks and banking competition

Abstract In this paper we study the incentives of banks to share their Automatic Teller Machines (ATMs) when they are competitors in the market for deposits. We construct a stylized model of banking competition which emphasises the distinctive features of ATM compatibility. We find that in equilibrium either a strict subset of banks share their ATMs or total incompatibility prevails. We also derive the implications for ATM compatibility of withdrawal fees, interchange bank fees, entry, and depositor switching costs. Finally, we investigate the normative implications of our model and draw some policy conclusions.

A selective review of the economics of standardization. Entry deterrence, technological progress and international competition

We provide a selective overview of the literature on standardization. We first summarize the essential mechanisms underlying the economics of product compatibility and in so doing we review the various frameworks that have been used. Then we survey existing work about the consequences of compatibility on entry deterrence and technological progress. We finally investigate some implications of the literature for trade policy in the presence of network externalities and suggest some directions for future research.

Price Competition in Multimarket Duopolies

In this article, we analyze the pricing strategies of firms that compete for the demand of an assortment of goods in a complete information static framework. In particular, we model the competition between two symmetric firms in a market that consists of two types of consumers, each of which may buy one unit of both goods sold by the two firms. We show that all Nash equilibria are such that neither firm charges the same price for both goods. Interestingly, under certain conditions, the firms jointly price discriminate between the two types of consumers and may even achieve the same level of profits as if they maximized joint profits; for another set of conditions, the unique equilibrium is such that the price for one of the goods and the price for the bundle are the same as the price of the good in a standard Hotelling model with one good. Finally, we show that if these equilibria exist, both firms prefer to sell both goods rather than specialize in either one of them. These results are a direct consequence of the interplay between the multimarket rivalry and the existence of more than one market segment, as modelled in this article.

Some considerations about 1992

Partial financial support from CICYT Grants n. PB 86-013 and PB 0340 is gratefully acknowledged.