Network Effects On Cash-Card Substitution In Transactions And Low Interest Rate Regimes

Sheri Markose and Yiing Jia Loke ()

Economic Journal, 2003, vol. 113, issue 487, 456-476

Abstract: We develop a Nash game on the adoption of a new EFTPOS (Electronic Fund Transfer at Point of Sale) card payment media given cash is dispensed by a competitive ATM (Automated Teller Machine) network. Equilibrium conditions when cash and card use coexist entail a specific relationship between the card network coverage parameter ("π"-super-"k") and the proportion ("ω") of cash financed expenditures. We derive a payments innovation technology constrained transactions demand for money which is highly interest rate sensitive in low interest rate regimes. Data on cash-card use in the UK (1990-97) is used to calibrate the model. Copyright 2003 Royal Economic Society.

Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:ecj:econjl:v:113:y:2003:i:487:p:456-476

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