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

Listed author(s):
  • 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.

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File URL: http://link.springer.com/10.1007/s11151-016-9543-y
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Article provided by Springer & The Industrial Organization Society in its journal Review of Industrial Organization.

Volume (Year): 51 (2017)
Issue (Month): 3 (November)
Pages: 257-290

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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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  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.
  2. John Bagnall & David Bounie & Kim P. Huynh & Anneke Kosse & Tobias Schmidt & Scott Schuh, 2016. "Consumer Cash Usage: A Cross-Country Comparison with Payment Diary Survey Data," International Journal of Central Banking, International Journal of Central Banking, vol. 12(4), pages 1-61, December.
  3. 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.
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  8. Hayashi Fumiko & Klee Elizabeth, 2003. "Technology Adoption and Consumer Payments: Evidence from Survey Data," Review of Network Economics, De Gruyter, vol. 2(2), pages 1-16, June.
  9. 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.
  10. Yassine Bouhdaoui & David Bounie, 2012. "Modeling the Share of Cash Payments in the Economy: An Application to France," International Journal of Central Banking, International Journal of Central Banking, vol. 8(4), pages 175-195, December.
  11. Jean-Charles Rochet & Jean Tirole, 2002. "Cooperation Among Competitors: Some Economics Of Payment Card Associations," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 549-570, Winter.
  12. Whitesell, William C, 1989. "The Demand for Currency versus Debitable Accounts: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(2), pages 246-257, May.
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  15. Marc Rysman, 2007. "AN EMPIRICAL ANALYSIS OF PAYMENT CARD USAGE -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 55(1), pages 1-36, 03.
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