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Abstract: Platform Competition in Two-Sided Markets: The Case of Payment Networks
Abstract
Platform Competition in Two-Sided Markets: The Case of Payment Networks
The Review of Network Economics
Vol. 5, Issue 1 - March 2006, pp 118 - 143
Author
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Sujit Chakravorti
Economic Research Department, Federal Reserve Bank of Chicago
E-mail: [email protected]
Roberto Roson
Economics Department, University of Venice
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Abstract
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In this article, we construct a model to study competing payment networks, where networks offer differentiated products in terms of benefits to consumers and merchants. We study market equilibria for a variety of market structures: duopolistic competition and cartel, symmetric and asymmetric networks, and alternative assumptions about consumer preferences. We find that competition unambiguously increases consumer and merchant welfare. We extend this analysis to competition among payment networks providing different payment instruments and find similar results.
Keywords: System competition, payment cards, proprietary networks
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