Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212113 
Year of Publication: 
2008
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 22/2008
Publisher: 
Bank of Finland, Helsinki
Abstract: 
Using a spatial competition model of retail payment networks, this paper discusses the likely economic consequences associated with the formation of the Single Euro Payments Area (SEPA). The model considers an expansion of positive network externalities on the demand side and adjustment cost on the supply side and reveals that the introduction of SEPA may not lead to a fully competitive and integrated retail payment markets. This is especially the case when the markets are segments before the introduction of SEPA. In such a scenario, the post-integrated markets are likely to remain segmented or will be characterised by a kinked equilibrium where no significant price competition takes place. In both outcomes, SEPA leads to increased prices, larger network sizes (ie increased number of customers) and a higher consumer surplus. Additionally, if the SEPA-induced adjustment costs for payment networks are not prohibitively high, SEPA may also lead to an increase in both profits and social welfare.
Subjects: 
integration
network effects
retail payments
JEL: 
G21
Persistent Identifier of the first edition: 
ISBN: 
978-952-462-461-9
Document Type: 
Working Paper

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