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Nonbanks in the Payments System: Vertical Integration Issues

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Author Info
Nicholas Economides () (Stern School of Business, New York University)

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Abstract

We discuss and evaluate the incentives for vertical expansion and vertical mergers in the payments systems industry paying particular attention to the implications of the existence of network effects in this industry. We assess the incentives of large merchants to extend vertically into payments systems, noting that this incentive is maximized when there is significant market power in payments systems and merchants are not sufficiently compensated for the business they bring to the network.

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File URL: http://www.stern.nyu.edu/networks/Economides_Nonbanks_Payments_System.pdf
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Publisher Info
Paper provided by NET Institute in its series Working Papers with number 07-06.

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Length: 35 pages
Date of creation: Aug 2007
Date of revision: Aug 2007
Handle: RePEc:net:wpaper:0706

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Web page: http://www.NETinst.org/

For technical questions regarding this item, or to correct its listing, contact: (Nicholas Economides).

Related research
Keywords: payments system credit cards debit cards non-banks vertical integration market power monopoly

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Find related papers by JEL classification:
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
L80 - Industrial Organization - - Industry Studies: Services - - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Jean-Charles Rochet & Jean Tirole, 2003. "An Economic Analysis of the Determination of Interchange Fees in Payment Card Systems," Review of Network Economics, Concept Economics, vol. 2(2), pages 69-79, June. [Downloadable!]
  2. Economides, Nicholas, 1989. "Desirability of Compatibility in the Absence of Network Externalities," American Economic Review, American Economic Association, vol. 79(5), pages 1165-81, December. [Downloadable!] (restricted)
  3. Julian Wright, 2004. "One-sided Logic in Two-sided Markets," Review of Network Economics, Concept Economics, vol. 3(1), pages 42-63, March. [Downloadable!]
  4. Joshua S. Gans & Stephen P. King, 2003. "Approaches to Regulating Interchange Fees in Payment Systems," Review of Network Economics, Concept Economics, vol. 2(2), pages 125-145, June. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Nicholas Economides & Joacim Tag, 2007. "Net Neutrality on the Internet: A Two-sided Market Analysis," Working Papers 07-27, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
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