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

Author/Editor:

Bin Grace Li ; James McAndrews ; Zhu Wang

Publication Date:

March 18, 2019

Electronic Access:

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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.

Series:

Working Paper No. 19/57

Subject:

English

Publication Date:

March 18, 2019

ISBN/ISSN:

9781484399620/1018-5941

Stock No:

WPIEA2019057

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

48

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