Federal Reserve Bank of Richmond
Two-sided Market, R&D and Payments System Evolution
It takes many years for more efficient electronic payments to be widely used, and the fees that merchants (consumers) pay for using those services are increasing (decreasing) over time. We address these puzzles by studying payments system evolution with a dynamic model in a two-sided market setting. We calibrate the model to the U.S. payment card data, and conduct welfare and policy analysis. Our analysis shows that the market power of electronic payment networks plays important roles in explaining the slow adoption and asymmetric price changes, and the welfare impact of regulations may vary significantly through the endogenous R&D channel.
Cite this item
Bin Grace Li & James J. McAndrews & Zhu Wang, Two-sided Market, R&D and Payments System Evolution, Federal Reserve Bank of Richmond, Working Paper 19-3, 08 Feb 2019.
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- G2 - Financial Economics - - Financial Institutions and Services
- O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
Keywords: payments system; technology adoption; two-sided market
This item with handle RePEc:fip:fedrwp:19-03
is also listed on EconPapers
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