Payment Card Network Pricing - A Theoretical Approach Analyzing the Relationship between Downstream Market Characteristics and the Merchant Usage Fee
AbstractIn this thesis the model of a payment card network is constructed to explore the impact of downstream market characteristics (i.e., the market where merchants and consumers interact) on the merchant and the interchange fee, thereby extending the literature’s observations of payment systems. To accomplish this, three scenarios are analyzed: firstly, a unitary payment card network with merchants under Cournot quantity competition and, secondly, under Bertrand price competition respectively, as well as, thirdly, a multi-party payment card network with merchants under Cournot quantity competition. This study yields two significant results. Firstly, the merchant and the interchange fee are found decreasing in the consumer price elasticity, the level of product substitutability and the relative frequency of card usage. Secondly, regulating the interchange fee and the merchant fee respectively is found particularly useful since, in markets with less competition where consumers already face inefficiently high prices, the payment card fees will also tend to be higher. --
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Bibliographic InfoThis book is provided by ZBW - German National Library of Economics in its series EconStor Theses with number 44593 and published in 2011.
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Two-sided markets; Payment card networks; Platform pricing; Bertrand competition; Industrial Organization; Cournot competition;
Find related papers by JEL classification:
- D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L4 - Industrial Organization - - Antitrust Issues and Policies
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- Wilko Bolt & Sujit Chakravorti, 2008.
"Economics of Payment Cards: A Status Report,"
DNB Working Papers
193, Netherlands Central Bank, Research Department.
- David S. Evans & Richard Schmalensee, 2005.
"The Industrial Organization of Markets with Two-Sided Platforms,"
NBER Working Papers
11603, National Bureau of Economic Research, Inc.
- David Evans & Richard Schmalensee, 2007. "The Industrial Organization of Markets with Two-Sided Platforms," CPI Journal, Competition Policy International, vol. 3.
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