Consumer Payment Preferences, Network Externalities, and Merchant Card Acceptance: An Empirical Investigation

30 Pages Posted: 7 Mar 2014 Last revised: 8 Oct 2015

See all articles by David Bounie

David Bounie

Telecom ParisTech

Abel Francois

Strasbourg University, LARGE; EM Strasbourg Business School; Telecom ParisTech

Leo Van Hove

Vrije Universiteit Brussel (VUB)

Date Written: September 21, 2015

Abstract

The two-sided market theory holds that consumer adoption and merchant acceptance of payment cards are interdependent. However, empirical evidence on such network externalities is scarce, especially for the merchant side. This paper uses a logit model to explain merchant card acceptance in France. We exploit shopping diary data to construct a novel and fine-grained measure of French consumers’ payment preferences and match these with data from a nation- wide merchant survey. Controlling for, among other factors, cost, degree of competition, and customer characteristics, we find that the higher the probability that the average basket of a merchant is paid for by card in shops in the same sector and region, the higher the probability that the merchant will accept cards. In other words, we find that consumer preferences drive merchant card acceptance, which underpins the existence of network externalities on the merchant side of the payment card market.

Keywords: retail payments, payment cards, merchants, network externalities

JEL Classification: E42, L81, D4

Suggested Citation

Bounie, David and Francois, Abel and Van Hove, Leo, Consumer Payment Preferences, Network Externalities, and Merchant Card Acceptance: An Empirical Investigation (September 21, 2015). Available at SSRN: https://ssrn.com/abstract=2405361 or http://dx.doi.org/10.2139/ssrn.2405361

David Bounie (Contact Author)

Telecom ParisTech ( email )

46 rue Barrault
F-75634 Paris, Cedex 13
France

Abel Francois

Strasbourg University, LARGE ( email )

47 avenue de la foret Noire
Strasbourg, 67000
France

HOME PAGE: http://abelfrancois.wordpress.com/information/

EM Strasbourg Business School ( email )

PEGE
61 avenue de la ForĂȘt Noire
Strasbourg, 67000
France

HOME PAGE: http://abelfrancois.wordpress.com/information/

Telecom ParisTech

46, rue Barrault
Paris Cedex 13, F-75634
France

Leo Van Hove

Vrije Universiteit Brussel (VUB) ( email )

Department of Applied Economics (APEC)
Pleinlaan 2
Brussels, B-1050
Belgium
+32 2 629 21 25 (Phone)
+32 2 629 20 60 (Fax)

HOME PAGE: http://research.vub.ac.be/applied-economics/members

Register to save articles to
your library

Register

Paper statistics

Downloads
149
rank
184,284
Abstract Views
878
PlumX