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The Adoption Process of Payment Cards -An Agent- Based Approach

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  • Alma L. Garcia-Almanza
  • Biliana Alexandrova-Kabadjova
  • Sara G. Castellanos Pascacio

Abstract

We investigate the payment adoption rate under consumers and merchants awareness of network externalities, given two levels of Interchange Fees in a multi-agent card market. For the purpose of our research, in multiple instantiations of the model (scenarios) the investigated efects are analyzed over the complete process of adoption, until the market s saturation point is achieved. Then, for each scenario, a comparison is made between two diferent levels of Interchange Fees and diferent degree of consumers and merchants awareness. To this end, we model explicitly the interactions between consumers and merchants at the point of sale. We allow card issuers to charge consumers with fixed fees and provide net benefits from card usage, whereas acquirers can charge fixed and transactional fees to merchants. The Interchange Fees flows from acquirers to issuers. Though, we acknowledge that the saturation point of the market is not only determined by network externalities and the level of Interchange Fees, but also by macroeconomic factors which we are not exploring at this stage of research.

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Bibliographic Info

Paper provided by BBVA Bank, Economic Research Department in its series Working Papers with number 1213.

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Length: 28 pages
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:bbv:wpaper:1213

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Keywords: Two-sided markets; financial services; network formation; analysis of collective decisionmaking;

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References

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  1. LeBaron, Blake, 2006. "Agent-based Computational Finance," Handbook of Computational Economics, in: Leigh Tesfatsion & Kenneth L. Judd (ed.), Handbook of Computational Economics, edition 1, volume 2, chapter 24, pages 1187-1233 Elsevier.
  2. Roson Roberto, 2005. "Two-Sided Markets: A Tentative Survey," Review of Network Economics, De Gruyter, vol. 4(2), pages 1-19, June.
  3. Baxter, William F, 1983. "Bank Interchange of Transactional Paper: Legal and Economic Perspectives," Journal of Law and Economics, University of Chicago Press, vol. 26(3), pages 541-88, October.
  4. Evans, David & Schmalensee, Richard, 2005. "The Economics of Interchange Fees and Their Regulation: An Overview," Working papers 18181, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  5. Schmalensee, Richard, 2002. "Payment Systems and Interchange Fees," Journal of Industrial Economics, Wiley Blackwell, vol. 50(2), pages 103-22, June.
  6. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
  7. D. COLANDER & al., 2010. "The Financial Crisis and the Systemic Failure of Academic Economics," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 6.
  8. Chakravorti Sujit, 2010. "Externalities in Payment Card Networks: Theory and Evidence," Review of Network Economics, De Gruyter, vol. 9(2), pages 1-28, June.
  9. LeBaron, Blake, 2000. "Agent-based computational finance: Suggested readings and early research," Journal of Economic Dynamics and Control, Elsevier, vol. 24(5-7), pages 679-702, June.
  10. Chakravorti, Sujit & To, Ted, 2007. "A theory of credit cards," International Journal of Industrial Organization, Elsevier, vol. 25(3), pages 583-595, June.
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  12. repec:reg:wpaper:105 is not listed on IDEAS
  13. Chakravorti Sujit, 2003. "Theory of Credit Card Networks: A Survey of the Literature," Review of Network Economics, De Gruyter, vol. 2(2), pages 1-19, June.
  14. Wilko Bolt & Sujit Chakravorti, 2008. "Economics of Payment Cards: A Status Report," DNB Working Papers 193, Netherlands Central Bank, Research Department.
  15. anonymous, 2008. "Federal Reserve Bank of Kansas City: 2007 annual report," TEN, Federal Reserve Bank of Kansas City, issue Spr, pages 37-81.
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Cited by:
  1. Angel De la Fuente, 2013. "La evolucion de la financiacion de las comunidades autonomas de regimen comun, 2002-2011," Working Papers 1332, BBVA Bank, Economic Research Department.
  2. Javier Alonso & Maria Lamuedra & David Tuesta, 2013. "Potentiality of reverse mortgages to supplement pension: the case of Chile," Working Papers 1311, BBVA Bank, Economic Research Department.
  3. Tatiana Alonso & Javier Alonso & Santiago Fernandez de Lis & Cristina Rohde & David Tuesta, 2013. "Global Financial Regulatory Trends and Challenges for Insurance and Pensions," Working Papers 1321, BBVA Bank, Economic Research Department.
  4. Javier Alonso & Tatiana Alonso & Santiago Fernandez de Lis & Cristina Rohde & David Tuesta, 2013. "Tendencias regulatorias financieras globales y retos para las Pensiones y Seguros," Working Papers 1323, BBVA Bank, Economic Research Department.

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