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

Grace Li, James McAndrews and Zhu Wang

No 2019/057, IMF Working Papers from International Monetary Fund

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 twosided 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: WP; fixed cost; payment card; R&D; Technology Adoption; Two-Sided Market; consumer welfare; card fee; cap regulation; card adoption; cash consumer; adoption cost; Currencies; Personal income; Payment systems; Credit; Technological innovation (search for similar items in EconPapers)
Pages: 48
Date: 2019-03-18
New Economics Papers: this item is included in nep-com and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Two-sided market, R&D, and payments system evolution (2020)
Working Paper: Two-sided Market, R&D and Payments System Evolution (2019)
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