Working Paper

Platform competition in two-sided markets: the case of payment networks

Abstract: 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 multihoming and 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: Payment systems; Competition;

Bibliographic Information

Provider: Federal Reserve Bank of Chicago

Part of Series: Working Paper Series

Publication Date: 2004

Number: WP-04-09