Competition Between Payment Systems

George Gardner and Andrew Stone
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George Gardner: Reserve Bank of Australia
Andrew Stone: Reserve Bank of Australia

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: This paper is the first of two companion pieces examining competition between payment systems. Here we develop a model of competing platforms which generalises that considered by Chakravorti and Roson (2006). In particular, our model allows for fully endogenous multi-homing on both the merchant and consumer sides of the market. We develop geometric frameworks for understanding the aggregate decisions of consumers to hold, and merchants to accept, different payment instruments, and how these decisions will be influenced by the pricing choices of the platforms. We also illustrate a new potential source of non-uniqueness in the aggregate behaviour of consumers and merchants which is distinct from the well-known ‘chicken and egg’ phenomenon – and indeed can only arise in the context of multiple competing platforms. Finally, we briefly discuss how this new source of non-uniqueness may nevertheless shed light on the ‘chicken and egg’ debate in relation to the development of new payment systems.

Keywords: payments policy; two-sided markets; interchange fees (search for similar items in EconPapers)
JEL-codes: D40 E42 L14 (search for similar items in EconPapers)
Date: 2009-04
New Economics Papers: this item is included in nep-com, nep-lab, nep-mic and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:rba:rbardp:rdp2009-02

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