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Platform Competition in Two-Sided Markets: The Case of Payment Networks

  • Chakravorti Sujit

    ()

    (Economic Research Department, Federal Reserve Bank of Chicago)

  • Roson Roberto

    (Economics Department, University of Venice)

In this article, we construct a model to study competing payment networks, where networks offer differentiated products in terms of benefits to consumers and merchants. We study market equilibria for a variety of market structures: duopolistic competition and cartel, symmetric and asymmetric networks, and alternative assumptions about consumer preferences. We find that competition unambiguously increases consumer and merchant welfare. We extend this analysis to competition among payment networks providing different payment instruments and find similar results.

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Article provided by De Gruyter in its journal Review of Network Economics.

Volume (Year): 5 (2006)
Issue (Month): 1 (March)
Pages: 1-25

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Handle: RePEc:bpj:rneart:v:5:y:2006:i:1:n:8
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  1. Sujit Chakravorti & Alpa Shah, 2001. "A study of the interrelated bilateral transactions in credit card networks," Occasional Paper; Emerging Payments EPS-2001-2, Federal Reserve Bank of Chicago.
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  14. Sujit Chakravorti & Timothy McHugh, 2002. "Why do we use so many checks?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 44-59.
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  17. Sujit Chakravorti & William R. Emmons, 2001. "Who pays for credit cards?," Occasional Paper; Emerging Payments EPS-2001-1, Federal Reserve Bank of Chicago.
  18. Schiff, Aaron, 2003. "Open and closed systems of two-sided networks," Information Economics and Policy, Elsevier, vol. 15(4), pages 425-442, December.
  19. 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.
  20. Little, Iain & Wright, Julian, 2000. "Peering and Settlement in the Internet: An Economic Analysis," Journal of Regulatory Economics, Springer, vol. 18(2), pages 151-73, September.
  21. Marius Schwartz & Daniel Vincent, 2002. "Same Price, Cash, or Card: Vertical Control by Payment Networks," Working Papers gueconwpa~02-02-01, Georgetown University, Department of Economics.
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