Research Discussion Papers, Bank of Finland
No 21/1998:
The Market for Electronic Cash Cards
Oz Shy and Juha Tarkka ()
Abstract: We develop a theoretical framework aimed to model the
pricing of electronic money (electronic cash cards) and the market domain
in which it will be used. We first calculate the fee structures of
electronic cash- and charge-card industries for the monopoly and
competitive cases. We show that the different market structures do not
affect the domain of electronic cash cards and the displacement of currency
in daily transactions. We provide a welfare analysis to determine whether a
market equilibrium generates an underutilization or overutilization of the
electronic cash cards relative to currency. Finally, we evaluate the
threshold investment costs, both general and POS-specific, which would
prevent the emergence of this industry.
Keywords: electronic money; smart cards; displacement of currency; (follow links to similar papers)
JEL-Codes: E40; G20; (follow links to similar papers)
35 pages, October 26, 1998
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