AN EMPIRICAL ANALYSIS OF PAYMENT CARD USAGE^*

Abstract

I exploit a unique data set on the payment card industry to study issues associated with network effects and two‐sided markets. I show that consumers concentrate their spending on a single payment network (single‐homing), although many maintain unused cards that allow the ability to use multiple networks (multi‐homing). Further, I establish a regional correlation between consumer usage and merchant acceptance within the four major networks (Visa, Mastercard, American Express and Discover). This correlation is suggestive of the existence of a positive feedback loop between consumer usage and merchant acceptance.