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

50 Pages Posted: 13 Feb 2019 Last revised: 29 Apr 2020

See all articles by Bin (Grace) Li

Bin (Grace) Li

International Monetary Fund

James McAndrews

Wharton Financial Institutions Center

Zhu Wang

Federal Reserve Banks - Federal Reserve Bank of Richmond

Multiple version iconThere are 2 versions of this paper

Date Written: 2019-02-08

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

JEL Classification: E4, G2, O3

Suggested Citation

Li, Bin (Grace) and McAndrews, James and Wang, Zhu, Two-Sided Market, R&D and Payments System Evolution (2019-02-08). FRB Richmond Working Paper No. 19-3, Available at SSRN: https://ssrn.com/abstract=3333604

Bin (Grace) Li (Contact Author)

International Monetary Fund ( email )

700 19th Street NW
Washington, DC 20431
United States

HOME PAGE: http://binli.economics.googlepages.com/

James McAndrews

Wharton Financial Institutions Center ( email )

2306 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States
9176090086 (Phone)
19104 (Fax)

Zhu Wang

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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