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Analysis of electronic micro-payment market

Research output: Working paper

  • E W K See-To
  • J Jaisingh
  • K Y Tam
Publication date2006
Place of PublicationLancaster University
PublisherThe Department of Management Science
<mark>Original language</mark>English

Publication series

NameManagement Science Working Paper Series


Despite the potential of micro-payment systems very few systems have been successful. Little is known about the reasons behind the successful few and the failures of the majority. Micro-payment markets exhibit two-sided network externalities and the underlying dynamics of these markets are not very well understood. Based on a stylized model of two-sided market, we find that there is a 'survival mass' of merchants and users for a micro-payment system to exist and a 'critical mass' for the acceptance levels to take off and remain stable. We also find the non-intuitive result that lowering the user-side adoption cost will actually reduce the chances for the micro-payment market to develop. Subsidization alone cannot create a micro-payment market. Anecdotal evidence supports this finding. When subsidization is needed, the user side will normally be subsidized. The two-sided market structure makes comparative analysis complex and non-trivial, rendering the implementation of micro-payment systems very difficult as indicated by the mixed results of a number of initiatives worldwide.