26 Pages Posted: 20 May 2020 Last revised: 2 Nov 2020
Date Written: October 20, 2020
In a market where consumers choose between payment options, and firms compete with products and prices, we show that payment data drives the formation of a market monopoly. Active intervention can successfully restore and maintain a competitive market, but often at the expense of both efficiency and consumer welfare. The introduction of a low-cost anonymous means of electronic payment, or digital cash, preserves the market structure and improves consumers' welfare by enabling them to monetize their private information. There are, however, challenges to the private provision of digital cash. We discuss the potential role of central banks in providing digital cash.
Keywords: Customer data, privacy, market structure, digital cash, payments
JEL Classification: E42, L11, L15
Suggested Citation: Suggested Citation