Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152939
Authors: 
Bolt, Wilko
Humphrey, David
Year of Publication: 
2005
Series/Report no.: 
ECB Working Paper 505
Abstract: 
This paper discusses various theoretic concepts which play a role in assessing the public benefits of Target, the large value RTGS payment network operated by the Eurosystem. These concepts touch upon natural monopoly, network externalities, competition and contestability, as well as economies of scale and scope. The existence of a natural monopoly provides a rationale for a temporary partial or full subsidy in order for Target to achieve the ‘most efficient scale’ or apply the most efficient technology to lower unit costs. Such a subsidy could be implemented through temporary 'penetration' pricing. Based on empirical results for the Federal Reserve’s payment system (Fedwire), it is further argued that if Target decided to standardize its operating platforms and consolidate its processing sites into one or a few centers, it too could realize strong scale economy benefits and lower unit costs.
Subjects: 
most efficient scale
natural monopoly
partial subsidy
public good
JEL: 
G20
H41
L10
Document Type: 
Working Paper

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