Working Paper No. 04-01:
Accommodating a New Tenant in the House of Cards: Introducing Competition Into a Network Industry

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Date Posted: 2004

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Abstract:

The network facilities of many network industries are natural monopolies. It is well accepted, however, that certain network industries may efficiently accommodate competition between several firms over the utilization of the network facilities. Historically, many networks had been created by a single firm, and introducing competition into such networks often requires compelled accommodation of a new competitor into a network dominated by an incumbent.

This paper studies one case of compelled accommodation in a networks industry — the introduction of a second processor of Visa-brand credit cards in Israel. The paper does not attempt to offer a theory on this matter, but rather provides a detailed case study that should assist in establishing an empirical basis to theories on government's role in introducing competition into a network industry.