Research For The Price Structure Of The Credit Market In China With Two-Sided Market Theory

There is an boom in China’s credit card market in recent years with expanding issuing market and improving acquiring market, as a result of the development of the electronic payment system and rapidly increasing disposable personal income. Nonetheless, endless disputes on the fees of credit card payment among consumers, merchants and banks indicates the pricing issue in the credit card market has become a bottleneck. As well as the intrinsic trait of two-sided market taken into consideration, the research will focus on price structure in the credit card market, constructing direct and indirect price structure models respectively base on two-sided market theory. Both models have shown that the price structure in the credit card market mainly depends the cross-network externality between issuing market and acquiring market which is affected considerably by the market structure.Therefore, the empirical data of China’s credit card market during a17-year period from1995to2011has been adopted to analyze the market structure and cross-network externality. It has been found that the credit card market is an oligopoly in which the card issuing market has imposed a significant positive one-way cross-network externality on the acquiring market. According to the research, the current price structure that consumers pay little, merchants shouldering the most or all of the cost is reasonable. Consequently, surcharge on consumers not only violates the rule of China Union Pay, but does not conform to the theory and reality. Instead of resorting to surcharge, balancing the allocation of the interests shared by merchants and banks and optimizing the revenue structure of the credit card business in card-issuing banks are the effective and essential ways to solve those disputes in a long run. Finally, some pieces of advices were provided to perfect the pricing system and promote the healthy development of China’s credit card market.