policymakers demonstrate

222 Nikolaos Vettas
charge higher fees for credit cards than for debit cards and merchants always
prefer to apply a card surcharge than to offer a cash discount.
In another study on card payment platforms, Ding and Wright (2014) examine
a monopolist card platform that can price discriminate, setting different
interchange fees (fees a merchant’s bank pays to the card-holder’s bank) for
different types of retailers. The authors find that the platform would tend to
set interchange fees too high, resulting in low fees for card usage and excessive
usage of cards. Compared to the case where only a single interchange fee
can be set, price discrimination by the platform can result in a lower average
interchange fee, but also in lower welfare.
One of the main issues in digital markets is the use of personal data and
related privacy issues. Access to data about buyers (e.g., from past purchases)
can be used by the buyers themselves, however such datasets certainly have
a value and, depending on the legal restrictions, could be transferred to third
parties. 47 Spiegel (2013) examines how privacy issues are related to the choice
between selling new software commercially and bundling it with ads and distributing
it for free. The willingness of buyers to offer access to personal data
may also be dependent on their understanding of the market and legal environment.
See Cabral and Hortaçsu (2010) and Cabral (2012) for reputation issues
and Belleflamme and Peitz (2012) for digital piracy. The matter is also related to
behavioral approaches to markets and competition (see e.g., Eliaz and Spiegler,
2008, Acquisti, 2010, Zhang, 2011 and Koszegi, 2014).
The work reviewed above is on the theory side of the analysis. Viewed as
a set, the results obtained in this recent literature generally cast doubt on the
view that one pricing model leads to higher prices or lower welfare compared
to another and in particular to the standard wholesale pricing model. The analyses
are conducted with different model specifications, such as with buyers’
switching costs, asymmetric information, complementary goods, and demand
interaction between online and traditional sales. It follows that competition policy
may need to seek more guidance when it comes to banning pricing according
to the agency model.
On the empirical side, there is still only very little work on the topic of
how different pricing arrangements affect equilibrium prices, profits and welfare.
This is despite the fact that the theory analysis offers mixed results, as
explained above, with the outcomes depending crucially on some parameters;
therefore the empirical guidance towards the formulation of policy would be
very useful. One notable study on the empirical side is by De los Santos and
Wildenbeest (2014). They perform a difference-in-differences analysis to estimate
the impact of the switch from the agency agreements to wholesale pricing
on e-book prices. The dataset used in the analysis contains daily prices of
e-books for a large number of titles, collected in the US across some major
online retailers. The analysis exploits cross-publisher variation in the timing