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Why Do Merchants Accept Payment Cards?

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  • Wright Julian

    (National University of Singapore)

Abstract

This short article explains why merchants accept expensive payment cards when merchants are Cournot competitors. The same acceptance rule as the Hotelling price competition model of Rochet and Tirole (2002) is derived. Unlike the models used in the existing literature, in the Cournot setting without free entry of merchants, payment card acceptance expands merchant output and increases merchant profit in equilibrium. With free entry, payment card acceptance increases the number of merchants in the industry and industry output.

Suggested Citation

  • Wright Julian, 2010. "Why Do Merchants Accept Payment Cards?," Review of Network Economics, De Gruyter, vol. 9(3), pages 1-8, August.
  • Handle: RePEc:bpj:rneart:v:9:y:2010:i:3:n:1
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    Citations

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    Cited by:

    1. Wang, Zhu, 2016. "Price cap regulation in a two-sided market: Intended and unintended consequences," International Journal of Industrial Organization, Elsevier, vol. 45(C), pages 28-37.
    2. Carbó-Valverde Santiago & Liñares-Zegarra José Manuel & Rodríguez-Fernández Francisco, 2012. "Feedback Loop Effects in Payment Card Markets: Empirical Evidence," Review of Network Economics, De Gruyter, vol. 11(2), pages 1-24, June.
    3. Krueger Malte, 2015. "Do the Poor Pay for Card Rewards of the Rich?," Review of Economics, De Gruyter, vol. 66(2), pages 129-154, August.
    4. Ding, Rong, 2014. "Merchant internalization revisited," Economics Letters, Elsevier, vol. 125(3), pages 347-349.
    5. Ginger Zhe Jin & Marc Rysman, 2015. "Platform Pricing at Sports Card Conventions," Journal of Industrial Economics, Wiley Blackwell, vol. 63(4), pages 704-735, December.
    6. Jonker Nicole, 2011. "Card Acceptance and Surcharging: the Role of Costs and Competition," Review of Network Economics, De Gruyter, vol. 10(2), pages 1-35, June.
    7. repec:bla:jindec:v:65:y:2017:i:1:p:39-72 is not listed on IDEAS
    8. Nicole Jonker & Anneke Kosse & Lola Hernández, 2012. "Cash usage in the Netherlands: How much, where, when, who and whenever one wants?," DNB Occasional Studies 1002, Netherlands Central Bank, Research Department.
    9. Zhu Wang, 2013. "Demand externalitites and price cap regulation: Learning from a two-sided market," Working Paper 13-06, Federal Reserve Bank of Richmond.
    10. Julian Wright, 2012. "Why payment card fees are biased against retailers," RAND Journal of Economics, RAND Corporation, vol. 43(4), pages 761-780, December.

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