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The Adoption Process of Payment Cards -An Agent- Based Approach

  • Biliana Alexandrova-Kabadjova
  • Sara Gabriela Castellanos Pascacio
  • Alma L. García-Almanza

We investigate the payment card's adoption rate under consumers' and merchants' awareness of network externalities, given two levels of Interchange Fees in a multiagent card market. For the purpose of our research, in multiple instances of the model (scenarios) the investigated effects are analyzed over the complete process of adoption, until the market's saturation point is achieved. For each scenario, a comparison is made between two different levels of Interchange Fees and different degrees of consumers' and merchants' awareness. We model explicitly the interactions between consumers and merchants at the point of sale. We allow card issuers to charge consumers with fixed fees and provide net benefits from card usage, whereas acquirers can charge fixed and transactional fees to merchants.

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File URL: http://www.banxico.org.mx/publicaciones-y-discursos/publicaciones/documentos-de-investigacion/banxico/%7B5550FC5F-54C5-5731-B291-0B9A7522D865%7D.pdf
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Paper provided by Banco de México in its series Working Papers with number 2012-02.

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Date of creation: May 2012
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Handle: RePEc:bdm:wpaper:2012-02
Contact details of provider: Web page: http://www.banxico.org.mx

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  1. LeBaron, Blake, 2000. "Agent-based computational finance: Suggested readings and early research," Journal of Economic Dynamics and Control, Elsevier, vol. 24(5-7), pages 679-702, June.
  2. Chakravorti, Sujit & To, Ted, 2007. "A theory of credit cards," International Journal of Industrial Organization, Elsevier, vol. 25(3), pages 583-595, June.
  3. Evans, David & Schmalensee, Richard, 2005. "The Economics of Interchange Fees and Their Regulation: An Overview," Working papers 18181, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  4. LeBaron, Blake, 2006. "Agent-based Computational Finance," Handbook of Computational Economics, in: Leigh Tesfatsion & Kenneth L. Judd (ed.), Handbook of Computational Economics, edition 1, volume 2, chapter 24, pages 1187-1233 Elsevier.
  5. Chakravorti Sujit, 2010. "Externalities in Payment Card Networks: Theory and Evidence," Review of Network Economics, De Gruyter, vol. 9(2), pages 1-28, June.
  6. D. COLANDER & al., 2010. "The Financial Crisis and the Systemic Failure of Academic Economics," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 6.
  7. Chakravorti Sujit, 2003. "Theory of Credit Card Networks: A Survey of the Literature," Review of Network Economics, De Gruyter, vol. 2(2), pages 1-19, June.
  8. Richard Schmalensee, 2001. "Payment Systems and Interchange Fees," NBER Working Papers 8256, National Bureau of Economic Research, Inc.
  9. anonymous, 2008. "Federal Reserve Bank of Kansas City: 2007 annual report," TEN, Federal Reserve Bank of Kansas City, issue Spr, pages 37-81.
  10. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
  11. Roson Roberto, 2005. "Two-Sided Markets: A Tentative Survey," Review of Network Economics, De Gruyter, vol. 4(2), pages 1-19, June.
  12. repec:reg:rpubli:105 is not listed on IDEAS
  13. Wilko Bolt & Sujit Chakravorti, 2008. "Economics of payment cards: a status report," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 15-27.
  14. Baxter, William F, 1983. "Bank Interchange of Transactional Paper: Legal and Economic Perspectives," Journal of Law and Economics, University of Chicago Press, vol. 26(3), pages 541-88, October.
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