Why Do Merchants Accept Payment Cards?
AbstractThis short article explains why merchants accept expensive payment cards when merchants are Cournot competitors. The same acceptance rule as the Hotelling price competition model of Rochet and Tirole (2002) is derived. Unlike the models used in the existing literature, in the Cournot setting without free entry of merchants, payment card acceptance expands merchant output and increases merchant profit in equilibrium. With free entry, payment card acceptance increases the number of merchants in the industry and industry output.
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Bibliographic InfoArticle provided by De Gruyter in its journal Review of Network Economics.
Volume (Year): 9 (2010)
Issue (Month): 3 (August)
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Web page: http://www.degruyter.com
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