Platform Competition in Two-Sided Markets: Expectations and the Future of Mobile Payments

Sammanfattning: This thesis explores the necessary conditions for Mobile payments to gain economy-wide dominance over Card payments. For this purpose, we construct a formal, game-theoretical model of competition between Card and Mobile payment platforms. In a two-sided market, the two distinct user groups of buyers and sellers interact with bounded rationality in a stochastic setting. These users make a platform adoption choice ex-ante and a transaction takes place ex-post if matched users hold compatible platforms. We confirm the possible existence of both efficient and inefficient equilibrium outcomes and show that when a critical mass of users are expected to adopt the Mobile platform, this platform will come to dominate the system. We conclude that the most influential forces for the platform adoption choice of users are (i) expectations, (ii) cost level and structure, and (iii) the possible surplus resulting from a transaction. Further, we introduce a path dependence in the system which embodies the power of convention and favors the initially dominant Card platform. A large enough disruption in user expectations, through an exogenous shock to the information sets of users, may however shift the system to an equilibrium where the Mobile platform dominates.