Platforms Compete Under Payment Systems that are Interoperable or Not

Platforms exploit consumers' strong personal preferences for a particular payment system to set payment restrictions and discriminatory strategies resulting in unfair competition. This harms users' rights, imposes additional costs on users, and hinders the healthy development of the platform service supply chain. Fortunately, governments are aware of the need to initiate the interoperability of payment systems. Following this trend, this study innovatively considers consumer adoption level of payment within platforms, payment misfit cost and payment network effect to build four scenarios for Hotelling models, by combining attributes of users' multi-homing choice and payment interoperability. A sensitivity analysis and numerical simulations are conducted, with further validation achieved by an extended model of two-sided markets and several important findings are obtained. Before payment interoperability, an increase in the payment misfit coefficient increases the profits of both platforms in the single-homing market mode; however, it decreases the profitability of the superior platform in the multi-homing. An increase in the coefficient of same-side payment network effect is detrimental to both platforms in the single-homing but benefits the superior platform in the multi-homing. In any case, platforms will gain more profits due to the increased consumer adoption level of payment. After interoperability, because there are no payment differences or consumer preferences, consumers do not have to bear extra costs and platform profit levels decrease. Moreover, the increase in the coefficient of the same-side payment network effect will reduce the profits of both platforms. In addition, the analysis of two-sided markets in extension reconfirms that interoperability helps to reduce prices, increase consumer activity, and eliminate the excess monopoly profits of platforms due to payment restrictions. A surprising discovery is that the traditional two-sided market findings are reversed by payment adoption level. In competitive bottleneck, the single-homing side is not always subsidized, rather some of these users are even charged high prices, and the multi-homing side is not always at a disadvantage