In recent old ages, a important function is given to the competitory ordinances and competition jurisprudence executions to let the full constitution of the competition in the market. The status of the success of these agreements and patterns is the analysis of the markets to the full and efficaciously.
In this context, reversible markets are particular sort of markets where two different client groups that are dependent on each other ‘s demands are brought together by a go-between through being charged on platforms and the point of position towards these markets must be varied from the other markets. The presence of the web effects in reversible markets has caused an attack to these markets as if they were monopoly or concentrated. Variation of the pricing scheme harmonizing to the indirect web outwardnesss, construction of the demand flexibilities constitutes an of import footing for this point of position. However, it should be known that analysing these markets accurately and expeditiously is non possible by insulating one side of the market from the other side because an application in one side of the market contributes to the presence and the benefit of the other party.
Keywords: Reversible Markets, Network Effects, Competition, Payment Card Systems
Jel Kodes: D41, D42, K21, L10, L50
Reversible markets differ from competitory and anti-competitive markets because of the demand relationship between client groups, presence of mediators and their platforms, pricing conditions and web effects. In this survey, the structural features of reversible these markets will be included after specifying these markets, the principle of the pricing policies in the market will be focused. Last, information about payment card systems which are one of the best-known illustrations of reversible markets will be provided, the interchange fees which have been discussed really much in this market will be addressed.
Definition of Reversible Markets
In general, reversible markets can be defined as markets with two different client groups that have demands associated with each other and where one of the groups obtain positive external benefits as a consequence of the other group ‘s action due to this relationship ( Veljonovski, 2006, p.34 ) . The connexion of the demands of the client groups to each other can be interpreted non merely by looking at the features of the goods and services of the clients but besides confabulating the value to that good and service by reexamining the figure of the client groups. In reversible markets, there are one or more go-betweens who guarantee the interaction between these two groups by conveying these two different together client groups. The go-between, charges both client groups individually when guaranting this interaction ( Rochet and Tirole, 2004, p.1 ) .
Among one of the most well-known illustrations of reversible markets are ; video game platforms that aim to convey participants and game developers together, package manufacturers that aim to convey users and application developers, newspapers that aim to convey advertizers and readers together and card-based payment systems that aim to convey concerns and consumers together. The two chief points that reversible market theory is based on are the web outwardnesss and the multi-product pricing. This means that there are outwardnesss which have n’t internalized among end users and the pricing construction is singular instead than the monetary value degree in these markets ( Rochet and Tirole, 2004, pp.1-2 ) .
What is the Platform?
One of the constructs that should be addressed on reversible markets is the construct of platform. Without any uncertainties, it is non possible to make an understanding by straight coming together for client groups that are in two different sides of the market. First of wholly, the dealing costs would be excessively high for such an understanding. In add-on, the free rider job is likely to be encountered with. That ‘s why any 3rd group can guarantee doing understandings that will internalise the web externalities that exist between these groups by interceding. The topographic point or the country where the intermediary establishes while making so is called the platform ( Veljonovski, 2006, p.35 ) .
In the tabular array there are illustrations of reversible markets, the parties that form the market and the platform suppliers who mediate these parties to come together:
Personal computer Operating Systems
Mention: Eisemen vd. , 2006, s.4
In all of these illustrations, the go-between group helps the realisation of procedures between client groups and these platform suppliers can be reviewed in different classs:
The mediator in this type of platform provides the understanding of two different client groups by conveying them together by selling dealing. This type of securities firm trading platform available on the market understandings by provides. The purchasers and Sellerss create these two different client groups. Auction houses and eBay can be shown as an illustration of the type of platform ( Veljonovski, 2006, p.36 ) .
Audience ( Target Market ) Builder Platforms
These platforms bring consumers with advertizers by selling message intended for the mark group of clients. Television channels, newspapers and magazines are the best known illustrations of this type of platform. In these platforms that can be defined as media industries, advertizers are Sellerss and audience and readers are purchasers. While the advertizers want to publicize on the most widely read newspapers and magazines or the most watched telecasting channels in order to accomplish their aims more easy, the purchaser group who is interested the content of the advertizement, will be directed to magazines, the newspapers or telecasting channels with a wider scope of advertizement ( Evans, 2002, p15 ) .
Demand Organizing Platforms
Demand organizing platforms do non acquire different client groups together by selling dealing or message. These sorts of platforms coordinate the demands of different client groups through indirect web outwardnesss. The most typical illustration of these platforms are the computing machine runing systems that coordinate the demands of the hardware, package makers and computing machine users ( Veljonovski, 2006, pp.36-37 ) .
Outwardnesss in Reversible Markets
In reversible markets, the presence of two different groups of client cause that the outwardnesss in these markets are seen in a assortment of ways.
First, the being of outwardnesss in the rank that seems as the engagement of more consumers in the same platform due to the addition in the figure of people on the platform can be mentioned. Membership outwardnesss are positive in general and can be identified as authoritative web outwardnesss. Web sites like Facebook and Twitter are illustrations of this sort of outwardnesss. Another type of outwardness in reversible markets is the usage outwardnesss that occur as a consequence of the interactions in between two different client groups due to the usage determination. Use outwardnesss vary since the use determinations depend on the cost that is decided for the use by the platform. For illustration, the lone manner that the merchandiser benefits more from the card-based payment systems is that the consumers use the recognition cards more than hard currency for purchases ( Rochet and Tirole, 2008, p.544 ; Cortade, 2006, p.19 ) .
As mentioned before, the chief point that the reversible markets are based on is that it contains positive web outwardnesss. In the positive web outwardnesss ; the benefit of consumers in a specific market additions with the figure of consumers purchasing that goods and services in that market. The effects created by the web outwardnesss are non merely about the impacts that arise straight. The chief economic feature of reversible markets is the being of indirect web outwardnesss in these markets. Indirect means that these effects of this web take topographic point via complementary constituents. Consequently, the benefit of the consumers in the presence of indirect web outwardnesss does non depend on the figure of consumers in the same side of the market but the addition in the demand for complementary goods by the consumers in the other side of the market. In reversible markets where the indirect web effects are seen, the lifting demand for the A merchandise will do an addition in the demand for a merchandise which is complementary and as a consequence there will be an addition in the value attributed to A merchandise. This is besides seen as a positive feedback mechanism. Hardware and package platforms can be given as illustration for the reversible markets where indirect web outwardnesss are observed ( Evans, 2002, p.32 ; Roson, 2005, p.144 ) .
Pricing in Reversible Markets
In reversible markets, the most of import factor impacting the success of the market is the pricing policy. Pricing in these markets is more hard than in nonreversible markets since finding of the optimum monetary value construction is every bit of import in add-on to the finding of the optimum monetary value degree ( Choi, 2007, p.2 ) .
Pricing policies in reversible markets is an issue that attracts attending in the economic literature and there are many surveies made on this topic. The common point of all this work, the consideration is non merely the demands of client groups for goods and services or the costs of these goods and services while pricing in reversible markets. In the monetary value finding it must be known that the two sides of the market is related with each other in footings of monetary value and demand. Because what decides the net income that the platform will obtain is that engagement in one side of the market positively effects the engagement to the other side ( Rysman, 2009, p.49 ) .
In general, the pricing type in reversible markets is asymmetric pricing. The implicit in rule of asymmetric pricing reason in reversible markets is the lower pricing of the mentioned side as a consequence of benefit provided by the addition of demand in one side of the market. In other words, one side of the market significantly pays less compared to the other side ( Evans, 2002, p.40 ; Schiff, 2007, p.21 ) .
The following tabular array shows illustrations of reversible market and pricing construction in these markets:
Side get charges little
Beginnings of gross
Newspapers and magazines
Approximately 80 per centum of newspaper gross comes from advertizers
For illustration, FOX earns half of its grosss from advertizers
Payment Card Systems
For illustration, in 2001, American Express earned 82 per centum of its grosss from merchandisers
For illustration, Microsoft earns at least 67 per centum of its grosss from licencing packaged package to end-users
Mention: Evans, 2002, p.71.
The elaboratenesss of this sort in reversible markets cause that ordinance policies for these markets contain elaboratenesss. In a simple nonreversible market, the lone thing that the regulative authorization has to make to be able to maximise the public assistance of society is to equalise the fringy cost to the monetary value. The manner to follow by the regulator in order to make this is to hold full cognition of the costs of the houses. However, this is non sufficient for reversible markets. First of wholly, it is impossible to equalise the monetary values in both sides of the market to the fringy cost due to the asymmetric construction of the pricing. Therefore, every bit good as the cost construction of the regulator, it should cognize the demands of the sides in the market ( Schiff, 2007, pp.21-22 ) .
5. Pricing Schemes in Reversible Markets
a. Elasticity of Demand
The snap of demand is a step of the grade of the sensitiveness of consumers towards the alterations in monetary value. One of the most of import factors that determine the pricing scheme in reversible markets is the snap of demand because in reversible markets, the platform suppliers can spread out the graduated table of the platform with their pricing based on the snap of demand. Consequently, the side with more snap of demand accesses the goods and services at a lower monetary value so that it creates the maximal benefit in the other side. Maximum benefit means that proviso of more part of the side that is charged lower increases the value of the other side. The ground for this consequence is created by the side that pays less is the positive web outwardness. While addition in the snap of demand of the side in the market lowers the monetary value, lessening in the snap of demand increases the monetary value ( Bolt and Tieman, 2005, p.1 ) .
B. Indirect Network Outwardnesss
Another determiner of pricing policy in reversible markets is indirect web outwardnesss. In reversible markets, the party that takes advantage of indirect web effects more, pays more. For illustration, in xanthous pages instance readers can entree other utile information, even if there is no advertisement. But, advertizers can non derive benefit in the absence of reader ( G & A ; uuml ; nd & A ; uuml ; z, 2009, p.16 ) .
c. Platform Competition and Multi-Homing
The being of a competitory platform in reversible markets has important effects on the monetary value degree. Realization of the monetary values at a lower degree in a competitory market compared to the non-competitive markets such as natural monopoly is a by and large accepted regulation in economic sciences because houses in a competitory market monetary value will avoid of increasing the monetary value ( Weyl, 2006, p.8-9 ) .
In reversible markets it is accepted that the competition reduces the degree of monetary value in the same manner. But in this instance the monetary value scope in sides is more of import than the monetary value degree in reversible markets. Because, even if the platform lead to a diminution in the general degree of competitory monetary values, in order the market to be successful, the competition in both sides of the market must be to the full provided.
If there is a more intense competition in one side of the market compared to the other side, the monetary value distribution deteriorates against the competitory side with less monetary value scope. As a consequence it is non clear that the competition of the platform will take to effectual monetary value construction ( Rochet and Tirole, 2008, p.550 ; Weyl, 2006, p.15 ) .
Reversible Markets In Footings Of Competition
When the reversible markets are subjected to an analysis in footings of competition and competition jurisprudence, at first glimpse, it can be said that these markets include non-competitive patterns. The ground of this is that single-sided attack is shown for reversible markets. However, if these markets will be full analyzed, it is seen that these non-competitive patterns are based on the competitory principle ( Veljonovski, 2006, p.37 ) .
a. Price Discrimination
One of the cardinal economic features of reversible markets is the mutuality between the demands of different client groups. Platform suppliers use this dependance to excite the entire demand in the market. In making so, they subject the client groups on the market to different monetary values. The belief that the monetary value favoritism patterns cut down the competitory force per unit areas is non realistic. In fact, what the competition is expected is non to extinguish the differences in monetary value degrees but to cut down the general degree of monetary values ( Veljonovski, 2006, p.37 ) .
B. Predatory or Excessive Pricing
Predatory pricing is that a house in dominant place in the market reduces the monetary values up to a point that it will lose in order to extinguish possible or existent rivals and forestall new houses from come ining the market in this manner. Since the predatory pricing restricts entree to the market and causes the house that adopts this pricing scheme to go the dominant force in the market it eliminates the competitory force per unit areas ( Evans, 2002, p.82 ) .
Since the basic map of reversible markets is to convey both sides of the market together, finding of the monetary value as even lower than the fringy cost may be an optimum pick. Because in the reversible markets, reflecting the costs to the client groups that exist in the market is contrary to the nature of the market ( Fletcher, 2007, p.221 ) .
As a consequence of holding a current pricing that is below the costs in one side of the market, a monetary value much higher than the costs can be seen in the other side of the market. This state of affairs is explained as inordinate pricing in the theory. If the competition authorization approaches to these parties individually, it may concluded that there is marauding pricing in one side of the market and inordinate pricing in the other side. However, application of cross-subsidies that is in inquiry here can non be seen as a monopolistic behaviour. Even if the net income that the platform has obtained as a consequence of the nonreversible attack is at a competitory degree, the being of predatory or inordinate pricing can be mentioned ( OECD, 2009, p.13 ) .
High Price-Cost Margins
As mentioned before, one of the most of import factors finding the pricing policy in the reversible markets is the esthesia of the sides in the market towards the alterations in monetary value. As a consequence that the side with less snap of demand makes higher pricing, observation of really high price-cost borders is natural ( OECD, 2009, p.13 ) .
To depict the high price-cost borders in one side of the market as market power, these rates must be valid for the other side of the market. However, the presence of a client group in the other side of the market with high snap of demand causes a low price-cost border. Here, necessity of analysing the two sides of the market together additions importance ( Schiff, 2007, p.22 ) .
Payment Card Systems
In each dealing made aˆ‹aˆ‹with the card in reversible markets, the card proprietors and concern proprietor organize the sides of the market. The manner to observe the web effects is to guarantee equal engagement in both sides of the market. Card holders will take to be included in the platform merely if the cards they use are accepted by a big group of operators and concern proprietors will take to be included in the platform if the clients use the card alternatively of hard currency when doing payment. Upon the engagement of the concern proprietors and card holders, the rank and the user outwardnesss will be internalized ( Rochet and Tirole, 2008, p.572 ) .
Payment cards are divided into two groups depending on the figure of the groups in the card processing as with three party strategies and four party strategies:
Four Party Schemes
This sort of payment card systems is besides known as an unfastened payment card systems. Payment systems where two establishments such as the accepting bank such as Visa and MasterCard and the issuer bank act as mediators and where multiple Bankss are member of the web can be shown as illustrations for the systems with four strategy. The four groups in the payment system consist of the card holder, the concern proprietor, the issuer bank and the accepting bank. The issuer bank means the bank that issues the card for usage by the card holder in his minutess. The geting bank is the bank that places the POS device in concerns. A assortment of payment flows is carried out between the four groups that form this system. First, the card holder is responsible of the one-year card fee payment type. In add-on, if the card holder uses his card as a agency of unbarred recognition, he will hold to pay involvement every bit good as the one-year card fee. Merchants pay for the services offered by the geting bank. Last, there is an interchange fee that the geting bank wages to the issuer bank ( Veljonovski, 2006, p.40 ) .
Three Party Schemes
Payment systems with three party strategies such as American Express and Diners Club are known as closed systems due to holding a individual go-between that carries out card issue and geting. Intermediary organisations can straight reach with merchandisers and cardholders. Presence of a individual intermediary organisation limits the bank with two undertakings such as selling and distribution. No interchange fee is in inquiry due to that the issuer and accepting Bankss are the same ( Veljonovski, 2006, p.40 ) .
6.1. Interchange Fees
Interchange fees consist of the payments made aˆ‹aˆ‹to the issuer bank by the geting bank. For illustration, as a consequence of the usage of MasterCard by a consumer in his shopping, the geting bank that placed the POS device in the concern is obliged to pay interchange fee to the issuer bank of the card holder. Card organisations with unfastened system can non straight find the fees that will be received from the sides as in closed systems. Because there are multiple Bankss which are members of this system and these Bankss come together and find the interchange fees together ( Lerner et al, 2006, p.572 ) .
Interchange fee is a payment impacting both merchandisers and consumers, peculiarly the geting bank because the exchange fee is of one of the highest cost points of the geting bank. The geting bank straight transfers these costs to merchant as merchandiser service fee. Merchants monetary values their goods and services at a higher degree and go through a part of their costs to the consumers. The interchange rates determined by the Bankss which are members of the payment systems with four party strategies show a really similar consequence with horizontal understandings. As a consequence of this state of affairs, the exchange rate has been exposed to unfavorable judgment and ailments of many client groups. Harmonizing to the merchandisers, the interchange fee is an unjust payment and has a negative impact for consumers since it is reflected in the monetary values of goods and services. The interchange fee is defined as an unfair revenue enhancement by a sector. Jointly finding of the interchange rate by the member Bankss forms a footing for the sentiment that this fee is good above the competitory degree. Interchange fee has formed the topic of monopoly cases in many parts of the universe and it has been even the regulative justification of the authorities ( Lerner et al, 2006, p.573 ) .
Reversible Market Approach To Interchange Fees
Interchange fee is the 1 of the issues that should be considered otherwise in reversible market theory. On the reverse of many competition governments ‘ attack, interchange fees are non cartel understanding for finding the monetary value aimed net income maximization. Because a price-fixing trust restricts end product in order to raise monetary values. As a consequence of this state of affairs some consumers will strip of the merchandise and there will be a decrease in societal public assistance. Termination of the trust will take to a lessening in monetary values and an addition in end product. But expiration of four party strategies will take to damage to both sides of market ( Lerner et al, 2006, p.613 ; Muris, 2005, pp.15-16 ) .
There is an sentiment that the interchange committee stabilizes the demand. Harmonizing to this, in order to increase the engagement in the platform, installations such has installment shopping, fillips and hold in installments are offered to the card holders. The costs of caused by these installations are reflected in the client group that causes less web outwardness and with a low snap of demand due to the nature of the reversible markets. These costs passed to one side of the market are compensated by the gross revenues grosss increased as a consequence of the enlargement of the graduated table of the platform ( Muris, 2005, p.12 ) .
6.3. Turkish Competition Authority to the Interchange Fees
Despite sing the exchange fee as an violation, the Competition Authority did non choose for the complete prohibition with the ground that it acts as an mediator in supplying the interaction in both sides of the market. Alternatively, it has set the finding of an interchange rate by the industries that have non sufficient adulthood and competency such as debit card yet of which at least they can bear the cost. However, it stipulated the remotion of some cost points from the computation points to forestall this application from bring forthing inordinate burden on the merchandisers and consumers who do non utilize card ( G & A ; uuml ; nd & A ; uuml ; z, 2009, p.59 ) .
Reversible markets should be analyzed in item in footings of competition since the construction of these markets is really complex. These complexnesss arise from interrelated demand between two sides and indirect web outwardnesss. The manner of internalising indirect web outwardnesss is acquiring two different client groups on board via mediators.
Interrelated demand construction and web outwardnesss affect pricing determinations. The monetary value paid by parties is determined through web effects that are created by sides and demand snap of client groups. In reversible markets ; the side that have higher snap of demand generates more web effects on the other side and as a consequence of this charges lower than the other side.
Competition governments may observe two- sided markets anti-competitive due to their monetary value constructions. The ground of this is that single-sided attack is shown for reversible markets. Alternatively of this both sides of the market should be considered together and interdependently.