The Price Structure And The Competition Between Payment Schemes

With the development of China's credit card industry, incidents that merchants refused to use credit cards constantly happened, which drew governments and trade associations' great attention. Under this background, this essay first reviews the card schemes by taking interchange fees as the clue, and then introduces the operation mechanism of card schemes and theories closely related to credit card industry such as network externality, multiple-products pricing, two-side market and game theory. After that, in order to point out that interchange fee can not be reduced by introducing competitors to China Unionpay when facing singlehoming consumers and monopolistic merchants , models are established to study the game among card schemes, banks, consumers and merchants under two conditions in which there is only one card scheme or two identical card schemes. As a result, the competition between two identical payment schemes can't give birth to lower interchange fees then single payment scheme when facing singlehoming consumers, only when facing multihoming consumers can the equilibrium interchange fee be reduced. Finally, suggestions are made for the further development of China's credit card industry based on the basic analyses of payment schemes.