Consumer Payment Preferences, Network Externalities, and Merchant Card Acceptance: An Empirical Investigation - Archive ouverte HAL Access content directly
Journal Articles Review of Industrial Organization Year : 2016

Consumer Payment Preferences, Network Externalities, and Merchant Card Acceptance: An Empirical Investigation

David Bounie
Abel François
Leo Van Hove
  • Function : Author

Abstract

The two-sided market theory holds that consumer adoption and merchant acceptance of payment cards are interdependent. However, empirical evidence on such network externalities is scarce, especially for the merchant side. This paper addresses this issue by examining merchant card acceptance in France. We exploit shopping diary data to construct a novel and fine-grained measure of French consumers’ payment preferences and match these with data from a nation-wide merchant survey. Controlling for (among other factors) cost, degree of competition, and customer characteristics, we find that the higher the probability that the average basket of a merchant is paid for by card in shops in the same sector and region, the higher the probability that the merchant will accept cards. In other words, we find that consumer preferences drive merchant card acceptance, which underpins the existence of network externalities on the merchant side of the payment card market.
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Dates and versions

hal-01533532 , version 1 (06-06-2017)

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David Bounie, Abel François, Leo Van Hove. Consumer Payment Preferences, Network Externalities, and Merchant Card Acceptance: An Empirical Investigation. Review of Industrial Organization, 2016, 51, pp.257-290. ⟨10.1007/s11151-016-9543-y⟩. ⟨hal-01533532⟩
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