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The Effect of Payment Reversibility on E-commerce and Postal Quality

Author

Listed:
  • Christian Jaag
  • Christian Bach

Abstract

In this paper we develop a stylized model of competition between brick-and-mortar merchants and online retailers. An offline transaction, matching payment with delivery, is without risk for both the seller and the buyer. In an online transaction the seller faces the potential risk of non-payment while the buyer risks failed delivery. The effects of these two risks depend on the reversibility of payment. While traditional payment systems for e-commerce are reversible, virtual currencies like Bitcoin offer irreversible transactions. This shifts the risk from the receiver of the payment to its sender. The paper explores the effect of payment reversibility on competition between offline and online merchants and on the importance of postal quality for e-commerce. It finds that payment irreversibility may strengthen e-commerce due to reduced overall risk. Moreover, under reasonable conditions, postal operators have stronger incentives for quality since it affects volumes more strongly if payment is irreversible.

Suggested Citation

  • Christian Jaag & Christian Bach, 2014. "The Effect of Payment Reversibility on E-commerce and Postal Quality," Working Papers 0046, Swiss Economics.
    • Handle: RePEc:chc:wpaper:0046
    as

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    File URL: http://www.swiss-economics.ch/RePEc/files/0046JaagBach.pdf
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    References listed on IDEAS

    as
    1. Julian Wright, 2012. "Why payment card fees are biased against retailers," RAND Journal of Economics, RAND Corporation, vol. 43(4), pages 761-780, December.
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    3. Hayashi Fumiko, 2006. "A Puzzle of Card Payment Pricing: Why Are Merchants Still Accepting Card Payments?," Review of Network Economics, De Gruyter, vol. 5(1), pages 1-31, March.
    4. Fahy, Colleen A., 2006. "Internet versus traditional retailing: An address model approach," Journal of Economics and Business, Elsevier, vol. 58(3), pages 240-255.
    5. Chakravorti, Sujit & To, Ted, 2007. "A theory of credit cards," International Journal of Industrial Organization, Elsevier, vol. 25(3), pages 583-595, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Virtual Currencies; Bitcoin; E-Commerce;
    All these keywords.

    JEL classification:

    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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    This paper has been announced in the following NEP Reports:

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