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Consumer Payment Preferences, Network Externalities, and Merchant Card Acceptance: An Empirical Investigation

Author

Listed:
  • David Bounie

  • Abel François

    (LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - ULCO - Université du Littoral Côte d'Opale - Université de Lille - CNRS - Centre National de la Recherche Scientifique)

  • Leo Van Hove

Abstract

The two-sided market theory holds that consumer adoption and merchant acceptance of payment cards are interdependent. However, empirical evidence on such network externalities is scarce, especially for the merchant side. This paper addresses this issue by examining merchant card acceptance in France. We exploit shopping diary data to construct a novel and fine-grained measure of French consumers' payment preferences and match these with data from a nation-wide merchant survey. Controlling for (among other factors) cost, degree of competition, and customer characteristics, we find that the higher the probability that the average basket of a merchant is paid for by card in shops in the same sector and region, the higher the probability that the merchant will accept cards. In other words, we find that consumer preferences drive merchant card acceptance, which underpins the existence of network externalities on the merchant side of the payment card market.

Suggested Citation

  • David Bounie & Abel François & Leo Van Hove, 2016. "Consumer Payment Preferences, Network Externalities, and Merchant Card Acceptance: An Empirical Investigation," Post-Print hal-01533532, HAL.
    • Handle: RePEc:hal:journl:hal-01533532
    DOI: 10.1007/s11151-016-9543-y
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    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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