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Consumer Payment Preferences, Network Externalities, and Merchant Card Acceptance: An Empirical Investigation

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  • David Bounie

    () (Telecom ParisTech)

  • Abel François

    () (Telecom ParisTech
    Lille 1 University, Science and Technology)

  • Leo Van Hove

    () (Vrije Universiteit Brussel)

Abstract

The two-sided market theory holds that consumer adoption and merchant acceptance of payment cards are interdependent. However, empirical evidence on such network externalities is scarce, especially for the merchant side. This paper addresses this issue by examining merchant card acceptance in France. We exploit shopping diary data to construct a novel and fine-grained measure of French consumers’ payment preferences and match these with data from a nation-wide merchant survey. Controlling for (among other factors) cost, degree of competition, and customer characteristics, we find that the higher the probability that the average basket of a merchant is paid for by card in shops in the same sector and region, the higher the probability that the merchant will accept cards. In other words, we find that consumer preferences drive merchant card acceptance, which underpins the existence of network externalities on the merchant side of the payment card market.

Suggested Citation

  • David Bounie & Abel François & Leo Van Hove, 2017. "Consumer Payment Preferences, Network Externalities, and Merchant Card Acceptance: An Empirical Investigation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 51(3), pages 257-290, November.
  • Handle: RePEc:kap:revind:v:51:y:2017:i:3:d:10.1007_s11151-016-9543-y
    DOI: 10.1007/s11151-016-9543-y
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    Cited by:

    1. Carin van der Cruijsen & Mirjam Plooij, 2018. "Drivers Of Payment Patterns At The Point Of Sale: Stable Or Not?," Contemporary Economic Policy, Western Economic Association International, vol. 36(2), pages 363-380, April.
    2. Krivosheya, Egor, 2020. "The role of financial innovations in consumer behavior in the Russian retail payments market," Technological Forecasting and Social Change, Elsevier, vol. 161(C).
    3. David Bounie & Youssouf Camara, 2020. "Card-Sales Response to Merchant Contactless Payment Acceptance," Post-Print hal-02296302, HAL.
    4. Carin Cruijsen & Joris Knoben, 2021. "Ctrl+C Ctrl+Pay: Do People Mirror Electronic Payment Behavior of their Peers?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 59(1), pages 69-96, April.
    5. Egor A. Krivosheya, 2018. "Evaluating Efficient Multilateral Interchange Fees: Evidence from End-User Benefits," HSE Working papers WP BRP 66/FE/2018, National Research University Higher School of Economics.
    6. Kim Huynh & Jozsef Molnar & Oleksandr Shcherbakov & Qinghui Yu, 2020. "Demand for Payment Services and Consumer Welfare: The Introduction of a Central Bank Digital Currency," Staff Working Papers 20-7, Bank of Canada.
    7. Jasmina Arifovic & John Duffy & Janet Jiang, 2017. "Adoption of a New Payment System: Theory and Experimental Evidence," Working Papers 171801, University of California-Irvine, Department of Economics.
    8. Kim Huynh & Gradon Nicholls & Oleksandr Shcherbakov, 2019. "Explaining the Interplay Between Merchant Acceptance and Consumer Adoption in Two-Sided Markets for Payment Methods," Staff Working Papers 19-32, Bank of Canada.
    9. Krivosheya, Egor & Korolev, Andrew, 2018. "Benefits of the retail payments card market: Evidence from Russian merchants," Journal of Business Research, Elsevier, vol. 88(C), pages 466-473.
    10. Itai Agur & Anil Ari & Giovanni Dell'Ariccia, 2019. "Designing Central Bank Digital Currencies," IMF Working Papers 2019/252, International Monetary Fund.
    11. BELLEFLAMME Paul, & LAMBERT Thomas, & SCHWIENBACHER Armin,, 2019. "Crowdfunding dynamics," LIDAM Discussion Papers CORE 2019014, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    12. David Bounie & Youssouf Camara, 2019. "Card-Sales Response to Merchant Contactless Payment Acceptance: Causal Evidence," Working Papers hal-02296302, HAL.
    13. David, Bounie & Abel, François & Patrick, Waelbroeck, 2016. "Debit card and demand for cash," Journal of Banking & Finance, Elsevier, vol. 73(C), pages 55-66.
    14. Bounie, David & Camara, Youssouf, 2020. "Card-sales response to merchant contactless payment acceptance," Journal of Banking & Finance, Elsevier, vol. 119(C).
    15. Aloys Prinz, 2019. "The microeconomics of mobile payments," Netnomics, Springer, vol. 20(2), pages 129-151, December.

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    More about this item

    Keywords

    Consumer preferences; Merchants; Network externalities; Payment cards; Retail payments; Two-sided markets;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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