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Chinese Journal of Management Science ›› 2021, Vol. 29 ›› Issue (2): 19-31.doi: 10.16381/j.cnki.issn1003-207x.2021.02.003

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Independent Pricing or Joint Pricing: Pricing Strategies for New Payment Instruments

QIU Jia-xian1, YONG Chi2, TONG Mu2   

  1. 1. Institute of Big Data Research, School of Business Administration, Southwestern University of Finance and Economics, Chengdu 611130, China;
    2. Research Center for China Payment System, School of Economic Information Engineering, Southwestern University of Finance and Economics, Chengdu 611130, China
  • Received:2018-09-06 Revised:2019-04-23 Published:2021-03-04

Abstract: Payment industry has had a rapid development in recent decades. The appearance of third-party payment means that the innovation of payment instruments has gradually expanded from traditional financial institutions to non-financial institutions, which will lead to different pricing strategies and market development. For both government and payment service provider (called enterprise in the research), there are two pricing strategies-independent pricing strategy and joint pricing strategy. The former strategy means that the enterprise or government makes the prices of new payment instrument to maximize the enterprise profit or the social welfare of new payment instrument, while the latter one refers to that of all payment instruments. Based on the two-sided market theory, new payment instrument pricing models of two pricing strategies are built according to the market characteristics such as market structure, cross network externality in the early development stage of new payment instrument.
The results indicate that the prices of two-sided users of new payment instrument are influenced by the prices of old payment instrument, enterprise's marginal costs of payment instruments and the cross-network externalities. There are often subsidies between payment instruments when the enterprise or government use independent pricing strategy. The independent pricing strategy of enterprise will lead to a lower price level to attract more users of new payment instrument when the old one is profitable, which explains the different pricing strategies phenomena of bank card and third-party payment in their early development stage in China. The independent pricing strategy of government will lead to the lowest social welfare because of the significant subsidies between payment instruments. And the social welfare even could be reduced when the cost advantage of new payment instrument is not obvious compare to the old payment instrument. The results suggest that enterprise profit maximization pricing for new payment instrument is the second best choice when the social planner could not adopt the joint pricing strategy.
The research explains the phenomena in the development of payment market, which also provides theoretical supports for the government to make the related policies.

Key words: payment instrument, two-sided market, pricing

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