Bianchi, Milo, Martimort, David and Straub, Stéphane (2024) Interoperability and Quality Provision in Digital Payments. TSE Working Paper, n. 24-1587, Toulouse

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Abstract

We develop a model in which digital payment providers compete by setting fees and investing in the quality of their service. Consumers’ valuation of the service depends on the fraction of other consumers who joins the same network. Providers’ fees and quality investment, together with consumers’ transport cost, endogenously determine the degree of market coverage and consumer surplus. We show that an unregulated monopolist charges high fees and limits its investment, resulting in lower market coverage and lower consumer surplus. Inducing competition increases consumer surplus by reducing service fees and increasing quality investments, and these effects are compounded by network externalities. Introducing interoperability allows a larger volume of transactions, but at the same time it weakens the competitive pressure on providers by limiting the strength of network effects, resulting in ambiguous welfare effects. Finally, we show how lack of interoperability is more likely to be associated to a monopolistic market structure.

Item Type: Monograph (Working Paper)
Language: English
Date: October 2024
Place of Publication: Toulouse
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse Capitole
Site: UT1
Date Deposited: 25 Oct 2024 14:19
Last Modified: 29 Oct 2024 14:22
OAI Identifier: oai:tse-fr.eu:129862
URI: https://publications.ut-capitole.fr/id/eprint/49781
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