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

Bin Grace Li, James McAndrews () and Zhu Wang

No 19-3, Working Paper from 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.

Keywords: payments system; technology adoption; two-sided market (search for similar items in EconPapers)
JEL-codes: E4 G2 O3 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2019-02-08
New Economics Papers: this item is included in nep-com, nep-mac and nep-pay
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Related works:
Journal Article: Two-sided market, R&D, and payments system evolution (2020) Downloads
Working Paper: Two-Sided Market, R&D and Payments System Evolution (2019) Downloads
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