1. Two-sided market, R&D, and payments system evolution
- Author
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Zhu Wang, Bin Grace Li, and James McAndrews
- Subjects
Economics and Econometrics ,media_common.quotation_subject ,Monetary economics ,Two-sided market ,Microeconomics ,Personal income ,Economic inequality ,Income distribution ,0502 economics and business ,Economics ,Market power ,050207 economics ,Fixed cost ,General Environmental Science ,050205 econometrics ,media_common ,05 social sciences ,TheoryofComputation_GENERAL ,D channel ,Payment ,Policy analysis ,Payment card ,General Earth and Planetary Sciences ,ComputingMilieux_COMPUTERSANDSOCIETY ,Welfare ,Finance - 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 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.
- Published
- 2020
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