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An Empirical Analysis of Payment Card Usage

Listed author(s):
  • Marc Rysman

    ()

    (Department of Economics, Boston University)

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.

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Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2006-002.

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Length: 35pages
Date of creation: Jan 2006
Handle: RePEc:bos:wpaper:wp2006-002
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Phone: 617-353-4389
Fax: 617-353-4449
Web page: http://www.bu.edu/econ/

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  1. Hunt Robert M., 2003. "An Introduction to the Economics of Payment Card Networks," Review of Network Economics, De Gruyter, vol. 2(2), pages 1-17, June.
  2. Paul S. Calem & Loretta J. Mester, "undated". "Consumer Behavior and the Stickiness of CreditCard Interest Rates," Rodney L. White Center for Financial Research Working Papers 03-94, Wharton School Rodney L. White Center for Financial Research.
  3. Hyytinen, Ari & Takalo, Tuomas, 2004. "Multihoming in the Market for Payment Media: Evidence from Young Finnish Consumers," Discussion Papers 893, The Research Institute of the Finnish Economy.
  4. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
  5. David B. Gross & Nicholas S. Souleles, 2001. "An Empirical Analysis of Personal Bankruptcy and Delinquency," NBER Working Papers 8409, National Bureau of Economic Research, Inc.
  6. Victor Stango, 2000. "Competition And Pricing In The Credit Card Market," The Review of Economics and Statistics, MIT Press, vol. 82(3), pages 499-508, August.
  7. Rochet, Jean-Charles & Tirole, Jean, 2003. "Platform Competition in Two-Sided Markets," IDEI Working Papers 152, Institut d'Économie Industrielle (IDEI), Toulouse.
  8. Joseph Farrell & Garth Saloner, 1984. "Standardization, Compatibility and Innovation," Working papers 345, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. 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.
  10. Julian Wright, 2001. "The Determinants of Optimal Interchange Fees in Payment Systems," Industrial Organization 0108001, EconWPA.
  11. Schmalensee, Richard, 2002. "Payment Systems and Interchange Fees," Journal of Industrial Economics, Wiley Blackwell, vol. 50(2), pages 103-122, June.
  12. Steven T. Berry & Joel Waldfogel, 1999. "Free Entry and Social Inefficiency in Radio Broadcasting," RAND Journal of Economics, The RAND Corporation, vol. 30(3), pages 397-420, Autumn.
  13. Mark Armstrong, 2005. "Competition in Two-Sided Markets," Industrial Organization 0505009, EconWPA.
  14. Stango, Victor, 2002. "Pricing with Consumer Switching Costs: Evidence from the Credit Card Market," Journal of Industrial Economics, Wiley Blackwell, vol. 50(4), pages 475-492, December.
  15. Marc Rysman, 2004. "Competition Between Networks: A Study of the Market for Yellow Pages," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 483-512.
  16. Shy,Oz, 2001. "The Economics of Network Industries," Cambridge Books, Cambridge University Press, number 9780521805001, December.
  17. Kaiser, Ulrich & Wright, Julian, 2006. "Price structure in two-sided markets: Evidence from the magazine industry," International Journal of Industrial Organization, Elsevier, vol. 24(1), pages 1-28, January.
  18. Wilson, Robert, 1997. "Nonlinear Pricing," OUP Catalogue, Oxford University Press, number 9780195115826, December.
  19. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
  20. Doganoglu, Toker & Wright, Julian, 2006. "Multihoming and compatibility," International Journal of Industrial Organization, Elsevier, vol. 24(1), pages 45-67, January.
  21. 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 541-588, October.
  22. Sujit Chakravorti & Roberto Roson, 2004. "Platform competition in two-sided markets: the case of payment networks," Working Paper Series WP-04-09, Federal Reserve Bank of Chicago.
  23. Ausubel, Lawrence M, 1991. "The Failure of Competition in the Credit Card Market," American Economic Review, American Economic Association, vol. 81(1), pages 50-81, March.
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