Competition is bad for consumers

Analysis of an artificial payment card market

Biliana Alexandrova-Kabadjova, Edward Tsang, Andreas Krause

Research output: Contribution to journalArticle

4 Citations (Scopus)

Abstract

This paper investigates the competition between payment card network platforms in an artificial payment card market. In the market, we model the interactions between consumers, merchants, and competing card schemes and obtain their optimal pricing structure. We allow platform operators to charge consumers and merchants with fixed fees, provide net benefits from card usage/acceptance, and engage in marketing activities. We assume that the consumer side exhibits lower demand elasticity. With these settings, we establish that consumers benefit from a reduction of the numbers of competing payment cards through lower fees and higher net benefits, while merchants remain largely unaffected. The two-sided nature of the market leads to the result that having more competitors actually reduces prosperity for customers.
Original languageEnglish
Pages (from-to)188-196
Number of pages9
JournalJournal of Advanced Computational Intelligence and Intelligent Informatics
Volume15
Issue number2
Publication statusPublished - Mar 2011

Fingerprint

Marketing
Elasticity
Costs

Cite this

Competition is bad for consumers : Analysis of an artificial payment card market. / Alexandrova-Kabadjova, Biliana; Tsang, Edward; Krause, Andreas.

In: Journal of Advanced Computational Intelligence and Intelligent Informatics, Vol. 15, No. 2, 03.2011, p. 188-196.

Research output: Contribution to journalArticle

@article{f00d6323278347499058f05d76fcaba8,
title = "Competition is bad for consumers: Analysis of an artificial payment card market",
abstract = "This paper investigates the competition between payment card network platforms in an artificial payment card market. In the market, we model the interactions between consumers, merchants, and competing card schemes and obtain their optimal pricing structure. We allow platform operators to charge consumers and merchants with fixed fees, provide net benefits from card usage/acceptance, and engage in marketing activities. We assume that the consumer side exhibits lower demand elasticity. With these settings, we establish that consumers benefit from a reduction of the numbers of competing payment cards through lower fees and higher net benefits, while merchants remain largely unaffected. The two-sided nature of the market leads to the result that having more competitors actually reduces prosperity for customers.",
author = "Biliana Alexandrova-Kabadjova and Edward Tsang and Andreas Krause",
year = "2011",
month = "3",
language = "English",
volume = "15",
pages = "188--196",
journal = "Journal of Advanced Computational Intelligence and Intelligent Informatics",
issn = "1343-0130",
publisher = "Fuji Technology Press",
number = "2",

}

TY - JOUR

T1 - Competition is bad for consumers

T2 - Analysis of an artificial payment card market

AU - Alexandrova-Kabadjova, Biliana

AU - Tsang, Edward

AU - Krause, Andreas

PY - 2011/3

Y1 - 2011/3

N2 - This paper investigates the competition between payment card network platforms in an artificial payment card market. In the market, we model the interactions between consumers, merchants, and competing card schemes and obtain their optimal pricing structure. We allow platform operators to charge consumers and merchants with fixed fees, provide net benefits from card usage/acceptance, and engage in marketing activities. We assume that the consumer side exhibits lower demand elasticity. With these settings, we establish that consumers benefit from a reduction of the numbers of competing payment cards through lower fees and higher net benefits, while merchants remain largely unaffected. The two-sided nature of the market leads to the result that having more competitors actually reduces prosperity for customers.

AB - This paper investigates the competition between payment card network platforms in an artificial payment card market. In the market, we model the interactions between consumers, merchants, and competing card schemes and obtain their optimal pricing structure. We allow platform operators to charge consumers and merchants with fixed fees, provide net benefits from card usage/acceptance, and engage in marketing activities. We assume that the consumer side exhibits lower demand elasticity. With these settings, we establish that consumers benefit from a reduction of the numbers of competing payment cards through lower fees and higher net benefits, while merchants remain largely unaffected. The two-sided nature of the market leads to the result that having more competitors actually reduces prosperity for customers.

UR - http://www.scopus.com/inward/record.url?scp=79952951840&partnerID=8YFLogxK

M3 - Article

VL - 15

SP - 188

EP - 196

JO - Journal of Advanced Computational Intelligence and Intelligent Informatics

JF - Journal of Advanced Computational Intelligence and Intelligent Informatics

SN - 1343-0130

IS - 2

ER -