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Adoption of a New Payment System: Theory and Experimental Evidence

Author

Listed:
  • Jasmina Arifovic

    (Simon Fraser University)

  • John Duffy

    (Department of Economics, University of California-Irvine)

  • Janet Jiang

    (Bank of Canada)

Abstract

We model the introduction of a new payment method that competes with an existing payment method. Due to network adoption effects, there are two symmetric pure strategy equilibria in which only one of the two payment methods is used. The equilibrium where only the new payment method is used is socially optimal. In an experiment, we find that, depending on the fixed fee for acceptance of the new payment method and on the choices made by participants on both sides of the market, either equilibrium can be selected. An evolutionary learning model provides a good characterization of our experimental data.

Suggested Citation

  • Jasmina Arifovic & John Duffy & Janet Jiang, 2017. "Adoption of a New Payment System: Theory and Experimental Evidence," Working Papers 171801, University of California-Irvine, Department of Economics.
    • Handle: RePEc:irv:wpaper:171801
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    File URL: https://www.economics.uci.edu/research/wp/1718/17-18-01.pdf
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    References listed on IDEAS

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    Cited by:

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    3. Kim Huynh & Gradon Nicholls & Oleksandr Shcherbakov, 2019. "Explaining the Interplay Between Merchant Acceptance and Consumer Adoption in Two-Sided Markets for Payment Methods," Staff Working Papers 19-32, Bank of Canada.

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    More about this item

    Keywords

    Payment methods; Network effects; E-money; Experimental economics.;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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