Date Added: Dec 2009
This paper investigates the impact on the network growth of the level of merchant discount, the level of Multilateral Interchange Fee (MIF), and the consumers' and the merchants' awareness of positive network effects. In an artificial market, in which issuers and acquirers belong to the same network, the authors simulate explicitly the interactions among consumers and merchants at the point of sale. They allow card issuers to charge fixed fees and provide net benefits from card usage, whereas acquirers could charge fixed and transactional fee. End users have homogeneous convenience benefits and are able to internalize network effects, because to a certain degree consumers are aware of the existence of merchants accepting cards and merchants are aware of the existence of consumers having cards.