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Market Power And Willingness To Pay In Network Industries: Evidence From Payment Cards Within Multiproduct Banking

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Abstract

Theoretical contributions on network industries have been numerous. However, there is a lack of sufficient empirical evidence which would assist related policymaking. This is the case of payment cards markets. This paper employs a unique database to analyze changes in market power and consumers' willingness to pay resulting from the introduction of payment cards in a multiproduct banking technology. Our findings indicate that any rise in bank market power from payment cards is associated to a greater increase in consumers' willingness to pay. Any antitrust intervention which does not take into account such welfare effects could be misguided.

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File URL: http://www.ugr.es/~teoriahe/RePEc/gra/fegper/FEGWP107.pdf
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Bibliographic Info

Paper provided by Faculty of Economics and Business (University of Granada) in its series FEG Working Paper Series with number 07/01.

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Length: 54 pages
Date of creation: 03 Nov 2007
Date of revision:
Handle: RePEc:gra:fegper:07/01

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Related research

Keywords: Card payments; bank market power; willingness to pay; multiproduct technology; network industries.;

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References

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  1. Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 990-1029, 06.
  2. Richard Schmalensee, 2001. "Payment Systems and Interchange Fees," NBER Working Papers 8256, National Bureau of Economic Research, Inc.
  3. Julian Wright, 2001. "The Determinants of Optimal Interchange Fees in Payment Systems," Industrial Organization 0108001, EconWPA.
  4. Christopher R. Knittel & Victor Stango, 2001. "Price ceilings as focal points for tacit collusion: evidence from credit cards," Working Paper Series WP-01-12, Federal Reserve Bank of Chicago.
  5. Carbó Valverde Santiago & Massoud Nadia & Rodríguez-Fernández Francisco & Saunders Anthony & Scholnick Barry, 2007. "The Economics of Credit Cards, Debit Cards and ATMs: A Survey and Some New Evidence," Working Papers 201074, Fundacion BBVA / BBVA Foundation.
  6. Carbo Valverde, Santiago & Fernandez, Francisco Rodriguez, 2005. "New evidence of scope economies among lending, deposit-taking, loan commitments and mutual fund activities," Journal of Economics and Business, Elsevier, vol. 57(3), pages 187-207.
  7. 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.
  8. Gans Joshua S & King Stephen P, 2003. "The Neutrality of Interchange Fees in Payment Systems," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-18, January.
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