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

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  • Biliana Alexandrova-Kabadjova
  • Sara Gabriela Castellanos Pascacio
  • Alma L. García-Almanza

Abstract

We investigate the payment card's adoption rate under consumers' and merchants' awareness of network externalities, given two levels of Interchange Fees in a multiagent card market. For the purpose of our research, in multiple instances of the model (scenarios) the investigated effects are analyzed over the complete process of adoption, until the market's saturation point is achieved. For each scenario, a comparison is made between two different levels of Interchange Fees and different degrees of consumers' and merchants' awareness. 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.

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File URL: http://www.banxico.org.mx/publicaciones-y-discursos/publicaciones/documentos-de-investigacion/banxico/%7B5550FC5F-54C5-5731-B291-0B9A7522D865%7D.pdf
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Bibliographic Info

Paper provided by Banco de México in its series Working Papers with number 2012-02.

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Date of creation: May 2012
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Handle: RePEc:bdm:wpaper:2012-02

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Web page: http://www.banxico.org.mx
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Keywords: Two-sided markets; financial services; network formation.;

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References

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  1. 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.
  2. Wilko Bolt & Sujit Chakravorti, 2008. "Economics of payment cards: a status report," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 15-27.
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  4. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
  5. Roson Roberto, 2005. "Two-Sided Markets: A Tentative Survey," Review of Network Economics, De Gruyter, vol. 4(2), pages 1-19, June.
  6. David Colander & Hans Föllmer & Armin Haas & Michael Goldberg & Katarina Juselius & Alan Kirman & Thomas Lux & Brigitte Sloth, 2009. "The Financial Crisis and the Systemic Failure of Academic Economics," Kiel Working Papers 1489, Kiel Institute for the World Economy.
  7. Richard Schmalensee, 2001. "Payment Systems and Interchange Fees," NBER Working Papers 8256, National Bureau of Economic Research, Inc.
  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. 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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  11. Chakravorti, Sujit & To, Ted, 2007. "A theory of credit cards," International Journal of Industrial Organization, Elsevier, vol. 25(3), pages 583-595, June.
  12. 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.
  13. David S. Evans & Richard Schmalensee, 2005. "The economics of interchange fees and their regulation : an overview," Proceedings – Payments System Research Conferences, Federal Reserve Bank of Kansas City, issue May, pages 73-120.
  14. 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.
  15. 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.
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Cited by:
  1. 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.
  2. 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.
  3. 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.
  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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