Network effects on Cash-Card Substitution in Transactions and Low Interest Rate Regimes
We develop a Nash game on the adoption of a new EFTPOS (Electronic Fund Transfer at Point of Sale) card payment media given cash is dispensed by a competitive ATM (Automated Teller Machine) network. Equilibrium conditions when cash and card use coexist entail a specific relationship between the card network coverage parameter ("π"-super-"k") and the proportion ("ω") of cash financed expenditures. We derive a payments innovation technology constrained transactions demand for money which is highly interest rate sensitive in low interest rate regimes. Data on cash-card use in the UK (1990-97) is used to calibrate the model. Copyright 2003 Royal Economic Society.
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