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Consumer Payment Preferences, Network Externalities, and Merchant Card Acceptance: An Empirical Investigation

David Bounie (), Abel François and Leo Van Hove ()
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David Bounie: Telecom ParisTech
Leo Van Hove: Vrije Universiteit Brussel

Review of Industrial Organization, 2017, vol. 51, issue 3, 257-290

Abstract: Abstract The two-sided market theory holds that consumer adoption and merchant acceptance of payment cards are interdependent. However, empirical evidence on such network externalities is scarce, especially for the merchant side. This paper addresses this issue by examining merchant card acceptance in France. We exploit shopping diary data to construct a novel and fine-grained measure of French consumers’ payment preferences and match these with data from a nation-wide merchant survey. Controlling for (among other factors) cost, degree of competition, and customer characteristics, we find that the higher the probability that the average basket of a merchant is paid for by card in shops in the same sector and region, the higher the probability that the merchant will accept cards. In other words, we find that consumer preferences drive merchant card acceptance, which underpins the existence of network externalities on the merchant side of the payment card market.

Keywords: Consumer preferences; Merchants; Network externalities; Payment cards; Retail payments; Two-sided markets (search for similar items in EconPapers)
JEL-codes: E42 L81 D4 (search for similar items in EconPapers)
Date: 2017
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Working Paper: Consumer Payment Preferences, Network Externalities, and Merchant Card Acceptance: An Empirical Investigation (2016)
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