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The Competition Between Cash and Mobile Payments in Markets with Mobile Partnerships A Monetary Search Model Point of View

Françoise Vasselin ()
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Françoise Vasselin: MATISSE - UMR 8595 - Modélisation Appliquée, Trajectoires Institutionnelles et Stratégies Socio-Économiques - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: A payment platform provides mobile money (M-money) to buyers who can also use cash to transact. An exogenous fraction of " traditional sellers " only accepts cash and creates no partnership with buyers while the remainder fraction consists of " mobile sellers " who accept M-money only and create partnerships with buyers to reduce search frictions. So, buyers without a partner must use cash and buyers with a partner must use M-money to trade. Buyers without a partner may hold cash, M-money, both monies or none while buyers with a partner always choose to hold M-money only or both monies. Hence, we obtain different equilibria where M-money always circulates, alone or in addition to cash. So, the partnership is a valuable coordination mechanism that makes M-money circulation permanent. Our model can explain why it may be useful to implement prescribed usages to trigger the adoption of a new payment instrument that aims to replace cash and why retailers implement partnerships through loyalty programs before the launching of their own M-money application. However, cash disappears only if traditional sellers have almost all disappeared.

Keywords: cash; mobile payments; search theory; partnerships; investment cost; mobile money (search for similar items in EconPapers)
Date: 2018-03-03
New Economics Papers: this item is included in nep-dge, nep-mon and nep-pay
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