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Competition Between Payment Systems: Results

Author

Listed:
  • George Gardner

    (Reserve Bank of Australia)

  • Andrew Stone

    (Reserve Bank of Australia)

Abstract

This paper is the second of two companion pieces. In the first we developed a model of competition between payment systems which extends that of Chakravorti and Roson (2006). Here we turn to the results which can be obtained from the Chakravorti and Roson model, from our extension of it, and from a third family of models which we develop in this paper. We obtain two main sets of findings. First, we shed further light on how competing platforms will set their price level and pricing structure when endogenous multi-homing is allowed on both sides of the market. Our results challenge the general finding in the literature that the greater the propensity of one side of the market to single-home, the more attractive will be the pricing offered to its members by competing platforms. Our results confirm that while this finding generally holds when platforms charge both consumers and merchants on a purely per-transaction basis, it need not hold in the more realistic situation where platforms instead levy flat fees on consumers. Second, we extend findings of Hermalin and Katz (2006) showing that, in certain circumstances, platforms may offer less attractive pricing to the side of the market which holds the choice of payment instrument at the moment of sale.

Suggested Citation

  • George Gardner & Andrew Stone, 2009. "Competition Between Payment Systems: Results," RBA Research Discussion Papers rdp2009-03, Reserve Bank of Australia.
  • Handle: RePEc:rba:rbardp:rdp2009-03
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    File URL: http://www.rba.gov.au/publications/rdp/2009/pdf/rdp2009-03.pdf
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    References listed on IDEAS

    as
    1. Jean-Charles Rochet & Jean Tirole, 2014. "Platform Competition in Two-Sided Markets," CPI Journal, Competition Policy International, vol. 10.
    2. Mark Armstrong & Julian Wright, 2007. "Two-sided Markets, Competitive Bottlenecks and Exclusive Contracts," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 32(2), pages 353-380, August.
    3. Chakravorti Sujit & Roson Roberto, 2006. "Platform Competition in Two-Sided Markets: The Case of Payment Networks," Review of Network Economics, De Gruyter, vol. 5(1), pages 1-25, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    payments policy; two-sided markets;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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