David Henriques - Research

- Can Access Price Indexation Promote Efficient Investment in Next Generation Networks?

The existing literature on access price and investment has pointed out that networks underinvest under a regime of mandatory access provision with a fixed access price per end-user. In this paper 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, the access price indexation can simultaneously induce lower retail prices and higher investment and social welfare, compared to both the fixed access pricing and the regulatory holidays. Furthermore, we show that the indexation can implement the socially efficient investment, which would be impossible to obtain under a fixed access pricing. Our results contradict the notion that investment efficiency must be sacrificed for gains in pricing efficiency.

- To Surcharge or Not to Surcharge? A Two-Sided Market Perspective of the No-Surcharge Rule, with Nicholas Economides. Paper | Presentation

In Electronic Payment Networks (EPNs) the No-Surcharge Rule (NSR) requires that merchants charge the same final good price regardless of the means of payment chosen by the customer. In this paper, we analyze a three-party model (consumers, merchants, and proprietary EPNs) to assess the impact of a NSR on the electronic payments system, in particular, on competition among EPNs, network pricing to merchants and consumers, EPNs' profits, and social welfare.
We show that imposing a NSR has a number of effects. First, it softens competition among EPNs and rebalances the fee structure in favor of cardholders and to the detriment of merchants. Second, we show that the NSR is a profitable strategy for EPNs if and only if the network effect from merchants to cardholders is sufficiently weak. Third, the NSR is socially (un)desirable if the network externalities from merchants to cardholders are sufficiently weak (strong) and the merchants' market power in the goods market is sufficiently high (low). Our policy advice is that regulators should decide on whether the NSR is appropriate on a market-by-market basis instead of imposing a uniform regulation for all markets.

- How Does Advertising Influence Media Competition? A Two-Sided Market Perspective. Paper | Presentation (available upon request)

This paper presents a three-party model considering: content subscribers that differ in their sensibility towards advertisements, advertising firms that may invest in ads quality and, media platforms competing simultaneously and non-cooperatively in the prices of contents and advertising slots.

We investigate the determinants of advertising quality and the implications that the proportion of ad-sensitive consumers has on platforms' profits, pricing structure and agent's payoffs, in the symmetric market equilibrium. We compare the market equilibrium levels of ad-airtime and quality to the socially efficient levels.

We show first that the proportion of ad-sensitive consumers and the number of competing media platforms are two relevant factors to determine advertising quality. Second, under some conditions, as the proportion of ad-sensitive consumers expands: i) advertisers (subscribers) price increases (decreases), ii) platforms reach higher profit levels, iii) subscribers are better-off and, iv) advertiser surplus will increase iff ad-quality is sufficiently high. Third, we show that i) the market solution under-provides ads quality, but it might under- or over-provide ad-airtime and, ii) ad-quality regulation may work implicitly as ad-airtime regulation.

- Turning on the lights: How to remodel electricity in a greener, price-competitive and consumer-oriented market? Paper | Presentation

This paper emphasizes three current regulatory issues in electricity markets and presents for each a theoretical solution. The analyzed regulatory concerns are (i) the reduction of pollution emission at the generation level; (ii) the market dominance and lack of investment/ power quality at the transportation level; and (iii) the service quality and final price at the supply level.
I show that the regulatory implementation of (i) the polluter-competitor principle presses power generators to invest in less polluting technologies; (ii) a rate-of-return regulation, at the transportation level, indexed to inconveniences cost to consumers induces to the social optimal investment at this stage in the network; and (iii) a wholesale price, at the supply level, indexed to service quality together with a end-user price cap enhances cost efficiency and better service quality provided.

OTHER MICRO-FOUNDED RESEARCH PAPERS

- Innovative products and financial incentives: balancing present and future consumption. (Portuguese and English Languages) Paper | Presentation

- Regional Wage Structure: A Panel Data Approach. Paper | Presentation

Spatial wage disparities can result from spatial differences in the skill composition of the workforce, in non-human endowments, and in local interactions, namely the distance to the economic centre. In this paper, the main equation to be estimated is the wage of a region relatively to the economic centre. Central to this equation is the idea that wages will be higher in those regions that have easy access to economic centers because for those regions demand linkages are relatively strong. I test this hypothesis using data on regional economic activities from the portuguese database Quadros de Pessoal (QP).

Work in Progress

- Two-sided markets: a dynamic approach, with Luis Cabral.

- Mistaken Perceptions of Market Rewards, Entry and Welfare, with Luis Santos-Pinto.

- Network Competition and Net Neutrality Regulation in the Age of Digital Convergence. Draft

Since its inception the Internet has been categorized by its net neutrality (NN), i.e. there has been non-price discrimination of transmitting packets based on the identity of the transmitter or receiver, application or type of content. Networks have been converging in such a way that each one offers all types of services (Voice, TV and Internet), and content providers (e.g. Google, Yahoo, YouTube) have been increasingly using networks to distribute their contents pushing Next Generation Networks (NGNs) to make significant investments that have to be financed. In the absence of regulation, NGNs might break the NN considering a multiplicity of discriminatory pricing schemes to increase revenues and allegedly finance the new investments. Though, allowing for discrimination may bring social perverse effects.
This paper proposes a two-stage regulatory guide using both competition policy and net neutrality regulation with the goal to boost the digital convergence process while minimizing the discrimination perverse effects. First, NN should be preserved to maximize network effects. In order to spur and finance the convergence investments under NN, the regulator may use competition policy: i) imposing the incumbent to open the network to entrant operators and, ii) setting the access price such that it increases (decreases) in incumbent's (entrant's) investment in the network. iii) If two networks co-exist the regulator may impose a cost-sharing rule, i.e., operators pay an access price proportional do the investment made by the competitor. Second, if competition policy is insufficient to generate the socially optimal investment, i) the regulator should set a minimum quality standard and ii) allow for NN departure.