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Adoption of a New Payment System: Theory and Experimental Evidence

Jasmina Arifovic (), John Duffy () and Janet Hua Jiang ()
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Jasmina Arifovic: Simon Fraser University
Janet Hua Jiang: Bank of Canada

No 171801, Working Papers from University of California-Irvine, Department of Economics

Abstract: We model the introduction of a new payment method that competes with an existing payment method. Due to network adoption effects, there are two symmetric pure strategy equilibria in which only one of the two payment methods is used. The equilibrium where only the new payment method is used is socially optimal. In an experiment, we find that, depending on the fixed fee for acceptance of the new payment method and on the choices made by participants on both sides of the market, either equilibrium can be selected. An evolutionary learning model provides a good characterization of our experimental data.

Keywords: Payment methods; Network effects; E-money; Experimental economics. (search for similar items in EconPapers)
JEL-codes: E41 C35 C83 C92 (search for similar items in EconPapers)
Pages: 64 pages
Date: 2017-08
New Economics Papers: this item is included in nep-exp, nep-gth, nep-mac and nep-pay
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