The Estimation of Monopoly Power in Two Sided Markets; The Case Study of Payment Cards in Iran

This article examines the theory of network-based economics (two-sided markets) and considers payment cards in Iran as a case study. Based on the monthly data of the Central Bank of Iran and the payment cards of electronic networks in Iran (SHAPARAK) from Dec. 2014 to March 2019, demand elasticity and monopoly power have been estimated. The results show that the elasticity of the cardholder and the card acquirer with respect to the interchange fee rate is 0.55 and nearly 1 (1.04), respectively. These results show that the cardholders have smaller elasticity to interchange fee compared to acquirer of payment cards. The estimated market power indicates that the payment card network in Iran is highly monopolistic. The payment card platform in Iran (SHAPARAK) does not impose its market power on the buyer side (card holders) and subsidizes them in order to create balance in transactions, but this platform impose exclusive power on merchant side (card acquirer) of payment cards. With this policy, card holders are attracted to the market which increase trading on the platform and platform profits. In general, on the buyer side of Iran payment card we have P = MC but on the merchant side P> MC. Therefore, the regulatory authorities in Iran must regulate SHAPARAK market power.