Market Structure and Welfare in Two-Sided Payment Markets with Heterogenous and Non-Strategic Customers

Riksbank Research Paper No. 21

Sveriges Riksbank Working Paper No. 185

32 Pages Posted: 9 Nov 2006  

Mats Bergman

Södertörn University, Stockholm

Date Written: November 8, 2006

Abstract

Two-sided network effects in card payment systems are analysed under different market structures, e.g., competition, one-sided monopoly, bilateral monopoly and duopoly; with and without an interchange fee; for the so-called Baxter's case of non-strategic and heterogenous merchants. A partial ranking of market structures according to their welfare effects is provided. Some support is found for the policy adopted by the EU Commission in the competition law case concerning Visa's interchange fees.

Keywords: Two-sided markets, card payments, payment systems, acquiring, issuing, market structure

JEL Classification: G21, L11, L44

Suggested Citation

Bergman, Mats, Market Structure and Welfare in Two-Sided Payment Markets with Heterogenous and Non-Strategic Customers (November 8, 2006). Riksbank Research Paper No. 21; Sveriges Riksbank Working Paper No. 185 . Available at SSRN: https://ssrn.com/abstract=943377 or http://dx.doi.org/10.2139/ssrn.943377

Mats A. Bergman (Contact Author)

Södertörn University, Stockholm ( email )

Alfred Nobels allé 7, Flemingsberg
Stockholm, Stockholm 14189
Sweden

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