Why Do Merchants Accept Payment Cards?

Julian Wright

Review of Network Economics, 2010, vol. 9, issue 3, 8

Abstract: This short article explains why merchants accept expensive payment cards when merchants are Cournot competitors. The same acceptance rule as the Hotelling price competition model of Rochet and Tirole (2002) is derived. Unlike the models used in the existing literature, in the Cournot setting without free entry of merchants, payment card acceptance expands merchant output and increases merchant profit in equilibrium. With free entry, payment card acceptance increases the number of merchants in the industry and industry output.

Keywords: payment; debit cards; credit cards (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (19)

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DOI: 10.2202/1446-9022.1221

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