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

Author

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  • Zhu Wang

    (Federal Reserve Bank of Richmond)

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 two-sided 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

  • Zhu Wang, 2019. "Two-sided Market, R&D and Payments System Evolution," 2019 Meeting Papers 833, Society for Economic Dynamics.
    • Handle: RePEc:red:sed019:833
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    References listed on IDEAS

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    Cited by:

    1. Kim Huynh & Gradon Nicholls & Oleksandr Shcherbakov, 2022. "Equilibrium in Two-Sided Markets for Payments: Consumer Awareness and the Welfare Cost of the Interchange Fee," Staff Working Papers 22-15, Bank of Canada.

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