What is it about?
This paper investigates the competition between payment card issuers in an artificial payment card market. In the market we model the interactions between consumers, merchants and competing card issuers and obtain the optimal pricing structure for card issuers. We allow card issuers to charge consumers and merchants with fixed fees, provide net benefits from card usage and engage in marketing activities. We establish that consumers benefit from a reduction of competing payment cards through lower fees and higher net benefits while merchants remain largely unaffected. The two-sided nature of the market leads to the result that more competitors do actually reduce competition for customers.
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Why is it important?
The developed agent-based model explores alternative policies scenarios and tests different hypothesis before rules are settled. It investigates a rich set of interactions among consumers and merchants aimed to gain insights on competition issues at the payment card market.
Perspectives
The paper examines a market dynamics of up to ten payment card schemes operating under different standards. This is the first study in the literature to model complex interactions among economic agents aimed at learning competition aspects of the electronic payment card market. We combine two powerfull tools: an agent-based model (ABM) and a learning algorithm. We used the ABM to simulate interactions at the point of sale among consumers and merchants. The developed learning algorithm is applied by card payment providers (artificial agents) to design their business strategies based on the market indicators obtained from the simulation.
Dr Biliana Alexandrova-Kabadjova
Banco de Mexico
Read the Original
This page is a summary of: Competition is Bad for Consumers: Analysis of an Artificial Payment Card Market, Journal of Advanced Computational Intelligence and Intelligent Informatics, March 2011, Fuji Technology Press Ltd.,
DOI: 10.20965/jaciii.2011.p0188.
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