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Network Effects On Cash-Card Substitution In Transactions And Low Interest Rate Regimes

  • Sheri M. Markose
  • Yiing Jia Loke

We develop a Nash game on the adoption of a new EFTPOS (Electronic Fund Transfer at Point of Sale) card payment media given cash is dispensed by a competitive ATM (Automated Teller Machine) network. Equilibrium conditions when cash and card use coexist entail a specific relationship between the card network coverage parameter ("π"-super-"k") and the proportion ("ω") of cash financed expenditures. We derive a payments innovation technology constrained transactions demand for money which is highly interest rate sensitive in low interest rate regimes. Data on cash-card use in the UK (1990-97) is used to calibrate the model. Copyright 2003 Royal Economic Society.

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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 113 (2003)
Issue (Month): 487 (04)
Pages: 456-476

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Handle: RePEc:ecj:econjl:v:113:y:2003:i:487:p:456-476
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