Payment System Competition And Public Policy Of Bank Card Industry

Thedevelopmentofbankcardindustryhasimportantsignificanceforreducingcashcirculation,bingingdowntransactioncost,promotingconsumption,expandingtaxationand boosting the development of the interrelated industries. In the bank card industry,stakeholdersmainlyincludepaymentsystem,issuingbanks,acquiringbanks,merchantsand cardholders. Market structure and market power of each party are important for thedevelopment of bank card industry. Bank card industry has typical characteristics oftwo-sided markets and network effects, due to these characteristics, the analysis oncompetition of bank card industry is obviously differ from other industries. This papermainly analyzes market structure of monopolistic payment system and competitivepayment system, and combines to different merchant market structure to discourse howtoreceiveoptimalinterchangefeesandtoadvancewelfareanalysis.This paper uses norm research methods to analyze two-sided markets theory,thecharacteristic of two-sided markets on bank card industry and interchange fees theory.Thepaperusescomparativeanalysismethodtocomparethelevelofinterchangefeesandwelfare. The paper uses game analysis method to analyze competition of duopoly bankcard networks on interchange fees. The paper uses empirical analysis to study bank cardindustryinChina.The paper proceeds as follows. Chapter 1 is an introduction, in this part, weintroduce mainly the background and meaning of my choice item,the related researchandoverview,basicthoughtsandmethodsofthepaper.Chapter2introduces mainlytwo-sidedmarkets theory,thetheorybasis ofthis paper.Firstly, we summarize the two-sided markets theory, which include pricing theory andexternality characteristic. Secondly, we explain the related theory and some importantconcepts of bank card industry, and illustrate operation mechanism and typicalcharacteristicofbankcardindustry.Chapter 3 researches how to set the optimal interchange fees in the monopolisticpayment system. Firstly, we set up the basic model of the monopolistic payment systemin the two-sided markets. Secondly, from the viewpoint of merchants, we analysis two kinds of market structure's effects on interchange fees in a monolopy payment scheme,one is monopolistic merchant, and the other one is strategic merchants. Finally, from theviewpoint of issuers and requirers in a monolopy payment scheme, we analysis thedeterminationofinterchangefeesandthewelfare.The determination of interchange fees among competing payment schemes isanalysized in the forth section of this article. In case of competing payment schemes, westudythecompetitionbetweenfor-profit andnot-for-profitpaymentschemes.Themainlypoint of this part is not-for-profit payment scheme. When analyzing the competitionbetween not-for-profit payment schemes, the market structure of merchants is the mostimportant factor in determing the interchange fees. At the same time, the consumers'behavior has important effect on interchange fees. When some consumers get intrinsicbenefits from holding cards, the equilibrium interchange fee resulting from competitionbetween identical card schemes facing monopolistic merchants leads to an interchangefee lower than that which maximizes the schemes'joint profit (or joint cardtransactions). When some consumers get intrinsic benefits from holding cards, theequilibrium interchange fee resulting from competition between identical card schemesfacingcompetingmerchantsleadstoaninterchangefeelowerthanthat whichmaximizestheschemes'jointprofit (orjointcardtransactions).Chapter 5 is the empirical analysis of bankcard industry in China. In this part, wefirstlydescribe the basic situation in China, and thenweresearch the market structure ofChinese bankcard industry witch based on the traditional SCP framework by using themethod of the factor analysis. After the analysis of market structure, we research thepricing behavior in Chinese bankcard industry. At last, we measure the effects on thisindustry.The 6^th part of this article is the public policies for the competition of this industry.In this part, some typical countries'experiences are introduced for the development ofChinesebankcardindustry.Someimplicationsareintroducedtothisindustry.The last part of this article is the conclusions. On the basis of previous work, thepaperpresentstheoutlookoftheresearchinthisindustry.Through the empirical analysis and normative analysis, we show that thecompetition between payment systems is not similar with the"one-sided market"in witch competition could improve efficiency and welfare, it means that competitionbetween"two-sided market"maybe have a worse effect on this industry's development.ThoughtherapiddevelopmentofbankcardindustryinChina,itisjustontheinitialstagecompared with developed countries. In China, a single payment system will still be aneffective industrial organization patern on condition that there is an effective regulationsystem.