Nonbanks in the Payments System: Vertical Integration Issues
New York University - Leonard N. Stern School of Business - Department of Economics
NET Institute Working Paper No. 07-06
NYU Law and Economics Research Paper No. 07-32
NYU Working Paper No. EC-07-23
We discuss and evaluate the incentives for vertical expansion and vertical mergers in the payments systems industry paying particular attention to the implications of the existence of network effects in this industry. We assess the incentives of large merchants to extend vertically into payments systems, noting that this incentive is maximized when there is significant market power in payments systems and merchants are not sufficiently compensated for the business they bring to the network.
Number of Pages in PDF File: 23
Keywords: payments system, credit cards, debit cards, non-banks, vertical integration, market power, monopoly
JEL Classification: L13, L42, L50, L80
Date posted: September 10, 2007
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