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Public vs. Private Payment Platforms: Market Impacts and Optimal Policy

Author

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  • Youming Liu
  • Francisco Rivadeneyra
  • Edona Reshidi

Abstract

We study competition between a welfare-maximizing public platform and a profit-maximizing private platform in a two-sided payment market. We characterize the public platform’s optimal pricing and show that it balances the benefits of increased competition against the welfare costs of network fragmentation. While introducing a public platform generally raises aggregate welfare and financial inclusion, the competing private platform may respond by raising its fees, disadvantaging merchants that continue to accept payments from the private platform. Finally, we show that cost-recovery and zero-fee mandates constrain public pricing, making welfare improvements uncertain and conditional on network effects, user switching behavior, and the degree of platform differentiation.

Suggested Citation

  • Youming Liu & Francisco Rivadeneyra & Edona Reshidi, 2026. "Public vs. Private Payment Platforms: Market Impacts and Optimal Policy," Staff Working Papers 26-10, Bank of Canada.
    • Handle: RePEc:bca:bocawp:26-10
    DOI: 10.34989/swp-2026-10
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    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Systems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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