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.
|Number of pages||9|
|Journal||Journal of Advanced Computational Intelligence and Intelligent Informatics|
|Publication status||Published - Mar 2011|
Alexandrova-Kabadjova, B., Tsang, E., & Krause, A. (2011). Competition is bad for consumers: Analysis of an artificial payment card market. Journal of Advanced Computational Intelligence and Intelligent Informatics, 15(2), 188-196.