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An Empirical Analysis of Payment Card Usage

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  • Marc Rysman

    ()
    (Department of Economics, Boston University)

Abstract

This paper exploits a unique data set on the payment card industry to study issues associated with network effects and two-sided markets. We show that consumers concentrate their spending on a single payment network (single-homing), although many maintain unused cards that allow the ability to use multiple networks (multi-homing). Further, we establish a regional correlation between consumer usage and merchant acceptance within the four major networks (Visa, Mastercard, American Express and Discover). This correlation is suggestive of the existence of a positive feedback loop between consumer usage and merchant acceptance.

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File URL: http://people.bu.edu/mrysman/research/EPCU.pdf
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Bibliographic Info

Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2006-002.

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Length: 35pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:bos:wpaper:wp2006-002

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Related research

Keywords: payment cards; two-sided markets; network effects;

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References

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  1. David B. Gross & Nicholas S. Souleles, 2001. "An Empirical Analysis of Personal Bankruptcy and Delinquency," NBER Working Papers 8409, National Bureau of Economic Research, Inc.
  2. Ausubel, Lawrence M, 1991. "The Failure of Competition in the Credit Card Market," American Economic Review, American Economic Association, vol. 81(1), pages 50-81, March.
  3. Kaiser, Ulrich & Wright, Julian, 2006. "Price structure in two-sided markets: Evidence from the magazine industry," International Journal of Industrial Organization, Elsevier, vol. 24(1), pages 1-28, January.
  4. Paul S. Calem & Loretta J. Mester, 1994. "Consumer Behavior and the Stickiness of Credit Card Interest Rates," Center for Financial Institutions Working Papers 94-14, Wharton School Center for Financial Institutions, University of Pennsylvania.
  5. Hyytinen, Ari & Takalo , Tuomas, 2004. "Multihoming in the market for payment media: evidence from young Finnish consumers," Research Discussion Papers 25/2004, Bank of Finland.
  6. Stango, Victor, 2002. "Pricing with Consumer Switching Costs: Evidence from the Credit Card Market," Journal of Industrial Economics, Wiley Blackwell, vol. 50(4), pages 475-92, December.
  7. Chakravorti Sujit & Roson Roberto, 2006. "Platform Competition in Two-Sided Markets: The Case of Payment Networks," Review of Network Economics, De Gruyter, vol. 5(1), pages 1-25, March.
  8. Richard Schmalensee, 2001. "Payment Systems and Interchange Fees," NBER Working Papers 8256, National Bureau of Economic Research, Inc.
  9. 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.
  10. Jean-Charles Rochet & Jean Triole, 2002. "Platform Competition in Two Sided Markets," FMG Discussion Papers dp409, Financial Markets Group.
  11. Julian Wright, 2004. "The Determinants of Optimal Interchange Fees in Payment Systems," Journal of Industrial Economics, Wiley Blackwell, vol. 52(1), pages 1-26, 03.
  12. Marc Rysman, 2004. "Competition Between Networks: A�Study of the Market for Yellow�Pages," Review of Economic Studies, Wiley Blackwell, vol. 71(2), pages 483-512, 04.
  13. Hunt Robert M., 2003. "An Introduction to the Economics of Payment Card Networks," Review of Network Economics, De Gruyter, vol. 2(2), pages 1-17, June.
  14. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
  15. Toker Doganoglu & Julian Wright, 2003. "Multihoming and compatibility," Departmental Working Papers wp0314, National University of Singapore, Department of Economics.
  16. Mark Armstrong, 2005. "Competition in Two-Sided Markets," Industrial Organization 0505009, EconWPA.
  17. Michael L. Katz, 2005. "What do we know about interchange fees and what does it mean for public policy? : commentary on Evans and Schmalensee," Proceedings – Payments System Research Conferences, Federal Reserve Bank of Kansas City, issue May, pages 121-137.
  18. Victor Stango, 2000. "Competition And Pricing In The Credit Card Market," The Review of Economics and Statistics, MIT Press, vol. 82(3), pages 499-508, August.
  19. Joseph Farrell & Garth Saloner, 1985. "Standardization, Compatibility, and Innovation," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 70-83, Spring.
  20. Wilson, Robert, 1997. "Nonlinear Pricing," OUP Catalogue, Oxford University Press, number 9780195115826.
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