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An Empirical Analysis of Payment Card Usage

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  • Marc Rysman

    () (Department of Economics, Boston University)

Abstract

This paper exploits a unique data set on the payment card industry to study issues associated with network effects and two-sided markets. We show that consumers concentrate their spending on a single payment network (single-homing), although many maintain unused cards that allow the ability to use multiple networks (multi-homing). Further, we establish a regional correlation between consumer usage and merchant acceptance within the four major networks (Visa, Mastercard, American Express and Discover). This correlation is suggestive of the existence of a positive feedback loop between consumer usage and merchant acceptance.

Suggested Citation

  • Marc Rysman, 2006. "An Empirical Analysis of Payment Card Usage," Boston University - Department of Economics - Working Papers Series WP2006-002, Boston University - Department of Economics.
  • Handle: RePEc:bos:wpaper:wp2006-002
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    References listed on IDEAS

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    1. Michael L. Katz, 2005. "What do we know about interchange fees and what does it mean for public policy? : commentary on Evans and Schmalensee," Proceedings – Payments System Research Conferences, Federal Reserve Bank of Kansas City, issue May, pages 121-137.
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    Cited by:

    1. Christos Genakos & Tommaso Valletti, 2011. "Testing The “Waterbed” Effect In Mobile Telephony," Journal of the European Economic Association, European Economic Association, vol. 9(6), pages 1114-1142, December.
    2. Marc Rysman, 2009. "The Economics of Two-Sided Markets," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 125-143, Summer.
    3. Robin A. Prager & Mark D. Manuszak & Elizabeth K. Kiser & Ron Borzekowski, 2009. "Interchange fees and payment card networks: economics, industry developments, and policy issues," Finance and Economics Discussion Series 2009-23, Board of Governors of the Federal Reserve System (U.S.).
    4. Daniel Birke, 2009. "The Economics Of Networks: A Survey Of The Empirical Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 23(4), pages 762-793, September.
    5. Verdier, Marianne, 2006. "Retail Payment Systems: What can we Learn from Two-Sided Markets?," MPRA Paper 2606, University Library of Munich, Germany.
    6. Ulf Kalckreuth & Tobias Schmidt & Helmut Stix, 2014. "Choosing and using payment instruments: evidence from German microdata," Empirical Economics, Springer, vol. 46(3), pages 1019-1055, May.
    7. Zinman, Jonathan, 2009. "Debit or credit?," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 358-366, February.
    8. Andrea Attar & Thomas Mariotti & François Salanié, 2011. "Nonexclusive Competition in the Market for Lemons," Econometrica, Econometric Society, vol. 79(6), pages 1869-1918, November.
    9. Bolt, Wilko & Jonker, Nicole & van Renselaar, Corry, 2010. "Incentives at the counter: An empirical analysis of surcharging card payments and payment behaviour in the Netherlands," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1738-1744, August.
    10. 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.
    11. Oz Shy, 2011. "A Short Survey of Network Economics," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 38(2), pages 119-149, March.
    12. Daniel A. Ackerberg & Gautam Gowrisankaran, 2006. "Quantifying equilibrium network externalities in the ACH banking industry," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 738-761, September.
    13. Fumiko Hayashi & Joanna Stavins, 2012. "Effects of credit scores on consumer payment choice," Public Policy Discussion Paper 12-1, Federal Reserve Bank of Boston.
    14. Elena Argentesi & Lapo Filistrucchi, 2007. "Estimating market power in a two-sided market: The case of newspapers," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(7), pages 1247-1266.
    15. Jonathan Zinman, 2004. "Why use debit instead of credit? Consumer choice in a trillion-dollar market," Staff Reports 191, Federal Reserve Bank of New York.
    16. Elizabeth C. Klee, 2006. "Families' use of payment instruments during a decade of change in the U.S. payment system," Finance and Economics Discussion Series 2006-01, Board of Governors of the Federal Reserve System (U.S.).
    17. Schuh, Scott & Stavins, Joanna, 2010. "Why are (some) consumers (finally) writing fewer checks? The role of payment characteristics," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1745-1758, August.
    18. Hiroshi Fujiki & Migiwa Tanaka, 2009. "Demand for Currency, New Technology and the Adoption of Electronic Money: Evidence Using Individual Household Data," IMES Discussion Paper Series 09-E-27, Institute for Monetary and Economic Studies, Bank of Japan.
    19. Roberto Roson, 2005. "Platform Competition with Endogenous Multihoming," Working Papers 2005.20, Fondazione Eni Enrico Mattei.
    20. Wang, Zhu, 2010. "Market structure and payment card pricing: What drives the interchange?," International Journal of Industrial Organization, Elsevier, vol. 28(1), pages 86-98, January.
    21. Fumiko Hayashi, 2008. "The economics of payment card fee structure: what drives payment card rewards?," Research Working Paper RWP 08-07, Federal Reserve Bank of Kansas City.

    More about this item

    Keywords

    payment cards; two-sided markets; network effects;

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L80 - Industrial Organization - - Industry Studies: Services - - - General

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