Platform Competition in Two-Sided Markets: The Case of Payment Networks
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.
