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Two-Sided Market, R&D and Payments System Evolution

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  • Bin Grace Li
  • James McAndrews
  • Zhu Wang

Abstract

It takes many years for more efficient electronic payments to be widely used, and the fees that merchants (consumers) pay for using those services are increasing (decreasing) over time. We address these puzzles by studying payments system evolution with a dynamic model in a twosided market setting. We calibrate the model to the U.S. payment card data, and conduct welfare and policy analysis. Our analysis shows that the market power of electronic payment networks plays important roles in explaining the slow adoption and asymmetric price changes, and the welfare impact of regulations may vary significantly through the endogenous R&D channel.

Suggested Citation

  • Bin Grace Li & James McAndrews & Zhu Wang, 2019. "Two-Sided Market, R&D and Payments System Evolution," IMF Working Papers 2019/057, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2019/057
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    References listed on IDEAS

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    Cited by:

    1. Guerino Ardizzi & Andrea Nobili & Giorgia Rocco, 2020. "A game changer in payment habits: evidence from daily data during a pandemic," Questioni di Economia e Finanza (Occasional Papers) 591, Bank of Italy, Economic Research and International Relations Area.
    2. Dr. Kyriazopoulos Georgios & Thanou Efthymia, 2020. "Mergers and Acquisitions and how they affect the Labor productivity. Evidence from the Greek Banking system," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 10(2), pages 1-3.

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    More about this item

    Keywords

    Currencies; Personal income; Payment systems; Credit; Technological innovation; WP; fixed cost; payment card;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • G2 - Financial Economics - - Financial Institutions and Services
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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