creditcardindustry,isbestcapturedbyWright(2004).13HeallowsforimperfectcompetitionbetweenacquirerswhilestilllettingtheNSRhold.Thuspositiveexter-nalitiesariseoneachsideofthemarket.Theanalysisfocusesontheoptimalityoftheinterchangefee,regardlessoftheexactformofcompetitionbetweenmerchantsorbetween nancialinstitutions.Duetothetwo-sidedstructureofthismarket,optimalitydependsalsoonthepass-throughrateofcosts,i.e.,theextenttowhichacquirersandissuerscanpassoncostincreases(orretaincostreductions)totheircustomers.Theauthorprovidesanecessaryandsu cientconditionforthewelfare-maximizinginterchangefeetoexceedthepro t-maximizingone.Forinstance,whenmerchantsengageinHotellingcompetitionandissuersandacquirerspassthroughcostsatthesamerate,theconditionissimplythatatthepro t-maximizinginter-changefeetheaveragebene ttoallthosemerchantswhoacceptcardsexceedsthefeetheypay.Raisingtheinterchangefeeincreasesthemerchantfee,whichinducessomemerchantstorejectthecard(increases“merchantresistance”),thusreducingthevolumeoftransaction.ThisdoesnothappenintheRochetandTirole(2002)model,sincetheacquirers’pass-throughrateisuniformlyhigherthanthatoftheissuers,duetotheassumptionofperfectcompetitionamongacquiringinstitutions.Wright(2004)furthermoreestablishesthatundertheaboveconditions,theaverageretailpricesformerchantsacceptingcardswillbehigher.Thisanalysispointsoutthesourceofpotentialdeviationsbetweentheprivatelyandsociallyoptimalleveloftheinterchangefee.

NonexclusiveMembershipinCompetingJointVentures.Aninterest-ingfeatureoftheVisaandMasterCardassociationsisthatamemberofMasterCardcanalsobeamemberofVisa.Thisfeature,knownas“memberduality”,historicallygeneratedsomecompetitionpolicyconcerns.Inarecentpaper,Hausman,Leonard,andTirole(2003)analyzethecompetitiveandgovernancee ectsofthis“duality.”Inparticular,theyinvestigatetheassociations’incentivesforinvestmentsforinnova-tion(cost-reduction)and ndthatinthepresenceofduality,iftheassociationsarenot-for-pro tandcollectusage-basedfeesfrommemberstocovercosts,thentheychooseeconomicallye cientlevelofinvestmentininnovation.Acombinationofnot-for-pro tandusage-basedfeeshelpeliminatethepotentialproblemofexercisingupstreammarketpowerbytheassociations.Ontheotherhand,iftheassociationsarepro t-maximizersorthereisnoduality,theassociationsinvestlessthantheef- cientlevel.Thisanalysismayshedsomelightsonregulatorypoliciestowardjointventuresandstrategicalliancesarisingincreditcards,ATMnetworks,andB2B

RochetandTirole(2004)haveundertakenageneralanalysisoftwo-sidedmarkets,whichwewilldiscussinthenextsection.13