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

Author

Listed:
  • David Bounie

    () (Telecom ParisTech)

  • Abel François

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

  • Leo Van Hove

    () (Vrije Universiteit Brussel)

Abstract

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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    References listed on IDEAS

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    1. Loke Yiing Jia, 2007. "Determinants of Merchant Participation in Credit Card Payment Schemes," Review of Network Economics, De Gruyter, vol. 6(4), pages 1-21, December.
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    Cited by:

    1. 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.

    More about this item

    Keywords

    Consumer preferences; Merchants; Network externalities; Payment cards; Retail payments; Two-sided markets;

    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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