The newspaper advertisement market, marriage brokerage companies and the credit card market, where such indirect network externality exists, are representative of two-sided markets. Indirect network externality occurs when the utility of two user groups connected via a platform varies depending on the size and demand for each other's products/services. Network externality is a phenomenon wherein the value of a product or service is affected by the number of product/service users as in the case of telephones or messenger services. Such markets are characterized by indirect or cross network externality, wherein the participation level of one user group changes due to adjustments in platform usage fees, which further affects the utility of the second user group. These regulations include prohibiting credit card companies from rejecting card payments and a no-surcharge rule.Īccording to Rhee (2010), “a two-sided market is a market in which two different types of user groups can interact through a platform, and the value created on the platform is affected by indirect network externality.” The usage fees in a two-sided market is adjusted by the platform on which the two user groups participate and not by direct interactions between the two user groups. The main reasons for this quantitative growth are government policies introduced to discover tax sources and stimulate the overall economy, the development of marketing and payment systems for credit card companies, and the introduction of regulations related to the domestic credit card market that meet the conditions of a two-sided market. The total number of cards issued was 220m (110m credit cards, 110m debit cards), the number of credit cards per individual in an economically active population was about 4.1 cards, and the number of merchants that accepted cards was 2.9m (see Figure 1). As of 2020, domestic card usage amounted to Korean Won (KRW) 877.3tn (credit card usage amounted to KRW 705.3tn, while check (or debit) card usage accounted for KRW 172.0tn), which represents 98.1% of Korea’s total private consumption expenditure, i.e. In recent years, the Korean credit card market has witnessed dramatic growth. The full terms of this licence maybe seen at Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Published in Journal of Derivatives and Quantitative Studies: 선물연구. (2023), "How does the price structure of two-sided markets affect transaction volume and market share: evidence from the Korean credit card market", Journal of Derivatives and Quantitative Studies: 선물연구, Vol. This effect can only be observed in specific cases such as the launch of the so-called “Chief Executive Officer(CEO)-designed card.” When a new CEO takes office in a credit card company and launches a “CEO-designed card,” there is a significant increase in not only card usage performance but MS as well owing to the price structure changes caused by expanding the benefits that customers derive from card use. Therefore, this study is the first to confirm that the Korean credit card market operated as the theoretical mechanism of a two-sided market during the analysis period. transaction volume) increases with an increase in the relative price ratio (merchant discount rate ÷ cardholder membership fee rate) paid by merchants and cardholders, provided that the total price (merchant discount rate + cardholder membership fee rate) paid by merchants and cardholders remains constant. Based on the analysis results, the authors found that credit card usage performance (i.e. In addition to the merchant discount rate and the cardholder annual membership fee rate, the authors included and analyzed exogenous variables to eliminate any endogeneity. a three-party system in Korea vs a four-party system in the U.S. The Korean credit card market differs from those in the United States (U.S.) or Europe in terms of transaction structure (i.e. This study aims to empirically examine the impact of the price structure of two-sided markets on transaction volume and market share (MS) in the context of the Korean credit card industry.
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