No. 185. A Welfare Ranking of Two-Sided Market Regimes

by Mats A. Bergman
June 2005, Revised September 2005

Abstract

Two-sided network effects in card payment systems are analysed under different market structures, e.g., competition, one-sided monopoly, bilateral monopoly and duopoly; with and without an interchange fee; for the so-called Baxter’s case of non-strategic merchants. A partial ranking of market structures according to their welfare effects is provided. Some support is found for the policy adopted by the EU Commission
in the competition law case concerning Visa’s interchange fees.

Keywords

Two-sided markets, card payments, payment systems,
acquiring, issuing, market structure

JEL code

G21, L11, L44