Regulating Two-Sided Markets: An Empirical Investigation

51 Pages Posted: 17 Jan 2010

See all articles by Santiago Carbo-Valverde

Santiago Carbo-Valverde

Universitat de València

Sujit Chakravorti

Chakra Advisors LLC

Francisco Rodriguez-Fernandez

University of Granada - Department of Economic Theory and History

Multiple version iconThere are 2 versions of this paper

Date Written: December 30, 2009

Abstract

We study the effect of government encouraged or mandated interchange fee ceilings on consumer and merchant adoption and usage of payment cards in an economy where card acceptance is far from complete. We believe that we are the first to use bank-level data to study the impact of interchange fee regulation. We find that consumer and merchant welfare improved because of increased consumer and merchant adoption leading to greater usage of payment cards. We also find that bank revenues increased when interchange fees were reduced although these results are critically dependent on merchant acceptance being far from complete at the beginning and during the implementation of interchange fee ceilings. In addition, there is most likely a threshold interchange fee below which social welfare decreases although our data currently does not allow us to quantify it.

Keywords: consumer payment choice, merchant payment adoption, network competition

JEL Classification: L11, G21, D53

Suggested Citation

Carbo-Valverde, Santiago and Chakravorti, Sujit and Rodriguez-Fernandez, Francisco, Regulating Two-Sided Markets: An Empirical Investigation (December 30, 2009). ECB Working Paper No. 1137, Available at SSRN: https://ssrn.com/abstract=1522023 or http://dx.doi.org/10.2139/ssrn.1522023

Santiago Carbo-Valverde (Contact Author)

Universitat de València ( email )

Departamento de Analisis Economico
Facultad de Economia, Campus Tarongers
Valencia, Valencia 46022
Spain

Sujit Chakravorti

Chakra Advisors LLC ( email )

3445 Deer Ridge Drive
Danville, CA 94506
United States

Francisco Rodriguez-Fernandez

University of Granada - Department of Economic Theory and History ( email )

Granada
Spain

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