This paper explains market turbulence, such as the recent dotcom boom/bust cycle, as equilibrium industry dynamics triggered by technology innovation. When a major technology innovation arrives, a wave of new firms enter the market implementing the innovation for profits. However, if the...

This paper studies endogenous diffusion and impact of a cost-saving technological innovation -- Internet Banking. When the innovation is initially introduced, large banks have an advantage to adopt it first and enjoy further growth of size. Over time, as the innovation diffuses into smaller...

An industry typically experiences initial mass entry and later shakeout of producers over its life cycle. It can be explained as a competitive equilibrium outcome driven by the dynamic interaction between technology progress and demand diffusion. When a new product is introduced, high-income...

This paper provides a theory of two-sided market dynamics with arguably better microfoundations. These alternative microfoundations focus on observable heterogeneities of both sides of the market in a competitive framework. The theory is rich in empirical predictions and is less dependent on a...

This paper presents a model for the credit card industry, where oligopolistic card networks price their products in a complex marketplace with competing payment instruments, rational consumers/merchants, and competitive card issuers/acquirers. The analysis suggests that card networks demand...

This paper seeks to provide a bridge between the theoretical and empirical literatures on interchange fees. Specifically, the paper confronts theory with practice by asking, to what extent do existing models of interchange fees match up with actual interchange fee practices in various countries?...

This paper documents the importance of nonbanks in retail payments in the United States and in 15 European countries and analyzes the implications of the importance and multiple roles played by nonbanks on retail payment risks. This paper also reviews the main regulatory safeguards in place, and...

Consumers pay for hundreds of goods and services each year, but across households and across goods, consumers do not choose to pay the same way. This paper posits that these differences depend in part on consumers' propensity to adopt new technologies, and depend in part on the nature of the...

The payment industry is undergoing significant change. Consolidations among payment networks and processors have been seen in every payment service area and technological advances provide incentives for even larger financial institutions to outsource their transaction processing. As a result, a...

This paper presents the initial results of a joint study undertaken by staff at the European Central Bank and the Federal Reserve Bank of Kansas City to document and analyze nonbanks in the payments system. The focus is on electronic (non-paper) retail payment services in the European Union and...