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Market structure and information in payment card markets

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Abstract

This paper investigates the structure of the payment card market, with consumers and merchants basing their subscription decisions on different information sets. We find that the market structure depends crucially on the information set on which consumers and merchants base their subscription decisions. In the studied case, we observe that a market with few cards dominating only emerges when decisions are based on very limited information. Under the same conditions using a complete information set, all cards survive in the long run. The use of an agent-based model, focusing on the interactions between merchants and consumers, as a basis for subscription decisions allows us to investigate the dynamics of the market and the effect of the indirect network externalities rather than investigating only equilibrium outcomes.

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Author information

Authors and Affiliations

  1. General Directorate of Payment Systems and Risk, Banco de Mexico, Mexico, C.P. 06059, Mexico

    Biliana Alexandrova-Kabadjova

  2. Centre for Computational Finance and Economic Agents, University of Essex, Colchester, CO4 3SQ, UK

    Edward Tsang

  3. School of Management, University of Bath, Bath, BA2 7AY, UK

    Andreas Krause

Authors
  1. Biliana Alexandrova-Kabadjova
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  2. Edward Tsang
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  3. Andreas Krause
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Corresponding author

Correspondence to Biliana Alexandrova-Kabadjova.

Additional information

Biliana Alexandrova-Kabadjova received the first degree in information systems at ITESM-CCM, Mexico in 1996. She received the M. Sc. degree in computer science and the Ph.D. degree in computational finance from the University of Essex, UK in 2003 and 2007, respectively. From 1997 to 2007, she was working as system analyst at the Directorate of Systems, Banco de Mexico (Mexican Central Bank). Since 2007, she has been a payment system analyst at the General Directorate of Central Bank Operations, Banco de Mexico. She is a member of the National System of Researchers (SNI) in Mexico.

Her research interests include payment card markets, payment systems, and agent-based computational economics.

Edward Tsang received the first degree in business administration (major in finance) and the Ph.D. degree in computer science. He is currently a professor in computer science at the University of Essex, UK where he leads the Computational Finance Group and Constraint Satisfaction and Optimization Group. He is also the director of the Centre for Computational Finance and Economic Agents (CCFEA), an interdisciplinary center. He chaired the Technical Committee for Computational Finance under the IEEE Computational Intelligence Society in 2004–2005.

His research interests include applied artificial intelligence, particularly computational finance, heuristic search, constraint satisfaction, and scheduling.

Andreas Krause received the M. Sc. degree in economics and the Ph.D. degree in finance from the University of Fribourg, Switzerland. He is currently a lecturer in finance at the University of Bath, UK.

His research interests include market microstructure theory, agent-based computational finance, and real options.

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Alexandrova-Kabadjova, B., Tsang, E. & Krause, A. Market structure and information in payment card markets. Int. J. Autom. Comput. 8, 364–370 (2011). https://doi.org/10.1007/s11633-011-0593-1

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  • DOI: https://doi.org/10.1007/s11633-011-0593-1

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