Regional labor markets are characterized by huge disparities with regard to employment development, unemployment and wages. The scale of such disparities between regions is comparable to that between national states. While institutional differences are often held responsible for disparities between national labor markets (Blanchard and Wolfers; 2000), they can only account for a minor fraction of disparities between regional labor markets. This goes back to the fact that labor market institutions vary only marginally between regions of a national state (Blien and Sanner; 2006).
The chain of events that led to the crisis has now been identified: the turmoil that erupted in summer 2007 followed a period of exceptional growth in the distribution of credit, financed through extensive use of leverage within the financial system. Banks following the “originate-to-distribute” model sold their loans on financial markets in a totally unregulated manner through structured investment vehicles (SIVs) and other off balance sheet vehicles. Short-term investors financed the SIVs, which held long-term claims of varying quality. After several years of benign macroeconomic conditions and plentiful market liquidity, investors became less and less cautious about the mounting risks associated with these increasingly complex new financial products, which were nevertheless receiving high ratings from credit rating agencies (CRAs), implying low risks to investors, financial firms and other users.
Rising defaults by subprime mortgage borrowers in the USA caused liquidity to dry up on these markets. This impacted interbank relations more broadly through a crisis of confidence, inflicting heavy losses on banks and ultimately triggering a global financial crisis. Central banks were and remain forced to make repeated injections of liquidity to restore confidence.
Transactions through electronic payment networks (EPNs) in the U.S. exceeded $1.18 trillion in 1999 and are growing rapidly. Several practices in this important industry have attracted controversy and antitrust scrutiny. One such practice involves constraints on the ability of merchants to set different prices depending on the means of payment employed such as credit or debit cards, cash or checks. We examine these constraints as instruments of vertical control, assess their welfare effects, and show that their presence may explain the growing phenomenon of rebates and reward programs in payments markets.
Uniform pricing constraints were at various times imposed by law or by EPN rules that prohibited merchants from imposing surcharges (or adverse non-price terms) for payments with an EPN card, even though merchants may face higher costs for such transactions due to fees charged by the EPN. Even in the absence of formal prohibitions, merchants are often reluctant to set different retail prices depending on the means of payment. We refer to all these limits as the No-Surcharge “Rule” (NSR).
