Two-Sided Market, R&D and Payments System Evolution
49 Pages Posted: 15 Apr 2019
Date Written: March 2019
It takes many years for more efficient electronic payments to be widely used, and the fees thatmerchants (consumers) pay for using those services are increasing (decreasing) over time. Weaddress these puzzles by studying payments system evolution with a dynamic model in a twosidedmarket setting. We calibrate the model to the U.S. payment card data, and conduct welfareand policy analysis. Our analysis shows that the market power of electronic payment networksplays important roles in explaining the slow adoption and asymmetric price changes, and thewelfare impact of regulations may vary significantly through the endogenous R&D channel.
Keywords: Income distribution, Consumer credit, Income inequality, Consumer goods, Payment systems, R&D, Technology Adoption, Two-Sided Market, consumer welfare, payment card, consumer income, electronic payment, large merchant
JEL Classification: E40, G2, O30, E01, E52, G21, Z13, E2
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