The Economics of Two-Sided Payment Card Markets: Pricing, Adoption and Usage ∗
| Title: | The Economics of Two-Sided Payment Card Markets: Pricing, Adoption and Usage ∗ |
|---|---|
| Authors: | Jamesmcandrewsand Zhuwang; Jel Classification L |
| Contributors: | The Pennsylvania State University CiteSeerX Archives |
| Source: | http://www.bankofcanada.ca/en/conference_papers/payment_economics_workshop/pdf/wang.pdf. |
| Publication Year: | 2008 |
| Collection: | CiteSeerX |
| Subject Terms: | Payment Cards; Two-sided Market; Interchange Fees |
| Description: | This paper provides a new theory for two-sided payment card markets by positing better microfoundations. Adopting payment cards by consumers and merchants requires a fixed cost, but yields lower marginal costs of making payments. Considering this together with the heterogeneity of consumer income and merchant size, our theory derives card adoption and usage pattern consistent with cross-section and time-series evidence. Our analyses also help explain the observed card pricing pattern, particularly the rising merchant (interchange) fees over time. This is because a private card network, besides internalizing the two-sided market externality, has the incentive to inflate the card transaction value. We show that privately determined card pricing, adoption and usage tend to deviate from the social optimum, and imposing a ceiling on interchange fees may improve consumer welfare. |
| Document Type: | text |
| File Description: | application/pdf |
| Language: | English |
| Relation: | http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.173.2393; http://www.bankofcanada.ca/en/conference_papers/payment_economics_workshop/pdf/wang.pdf |
| Availability: | http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.173.2393; http://www.bankofcanada.ca/en/conference_papers/payment_economics_workshop/pdf/wang.pdf |
| Rights: | Metadata may be used without restrictions as long as the oai identifier remains attached to it. |
| Accession Number: | edsbas.C0593879 |
| Database: | BASE |