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

By Grace B Li, James McAndrews, Zhu Wang

March 18, 2019

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Format: Chicago

Grace B Li, James McAndrews, and Zhu Wang. Two-Sided Market, R&D and Payments System Evolution, (USA: International Monetary Fund, 2019) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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.

Subject: Credit, Currencies, Financial markets, Money, National accounts, Payment systems, Personal income, Technological innovation, Technology

Keywords: Adoption cost, Cap regulation, Card adoption, Card fee, Cash consumer, Consumer welfare, Credit, Currencies, Fixed cost, Payment card, Payment systems, Personal income, R&D, Technological innovation, Technology Adoption, Two-Sided Market, WP

Publication Details

Pages:

48
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/057
Stock No:

WPIEA2019057
ISBN:

9781484399620
ISSN:

1018-5941

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