We estimate a structural model of sponsored search auctions at “Website X”, one of the largest online marketplaces in China. We use the estimates to address the distributional and revenue impact of “scoring” the auction, which is a way for shopping websites to reward larger merchants (by penalizing smaller merchants). We find evidence of horizontal differentiation in preferences, as merchants o...

We study the ability of banks and merchants to influence the consumer’s payment instrument choice. Consumers participate in payment card networks to insure themselves against three types of shocks— income, theft, and their merchant match. Merchants choose which payment instruments to accept based on their production costs and increased profit opportunities. Our key results can be summarized as ...

This paper develops a dynamic model of an economy with search frictions in which homogeneous agents choose between specializing as producers or as merchants, and can change occupation at any time. Merchants operate alongside a decentralized search market and provide immediacy in trade in return for a price. Agents who know the location of a merchant have the option of paying the merchant’s pric...

Trade prospered in absence of law in California during the 1830s and 1840s. Merchants, through intermerchant trade and the partnerships they organized to buy goods abroad, played a central role in trade. This article examines the privateorder institution that facilitated intermerchant trade. The hypothesis is that a particular type of private-order institution, a coalition, governed agency rela...

In this paper a novel payment system for Peer-to-Peer (P2P) commerce transactions is presented. It implements electronic cash-based transactions, between buyers and merchants. In this system, financial institutions become partners in the e-commerce transaction, conducted by their customers over the Internet. The innovation of the proposed system is the reduction of the involvement of the financ...

This paper develops a minimal model of an economy with intermediation. The focus is on the endogenous choice of homogeneous agents between specializing as producers or as merchants. Merchants operate alongside a decentralized search market and provide immediacy in exchange. Endogenous choice requires that agents be free to move between the two occupations at any time. Using only this condition,...

We present an architecture for global customization of web content, by which a web site can customize content for each visitor based on the activities undertaken by the same user on other, unrelated sites. Our architecture distinguishes itself in the privacy mechanisms it provides: each user controls what information a merchant can learn about her activities at other merchants, and each merchan...

In this article, we investigate why merchants accept credit cards for payment despite the relatively high cost of processing these types of transactions. A two-period model is constructed to determine under what conditions a credit card equilibrium would exist. The results of the model indicate that when the cost of funds is not too high and when the merchant’s profit margin is sufficiently hig...

This paper investigates the competition between payment card issuers in an artificial payment card market. In the market we model the interactions between consumers, merchants and competing card issuers and obtain the optimal pricing structure for card issuers. We allow card issuers to charge consumers and merchants with fixed fees, provide net benefits from card usage and engage in marketing a...

We synthesize the results of the recent theoretical literature on the determination of interchange fees by payment card associations. We analyze in particular the conditions under which these interchange fees are excessively high, as compared with social optimum. These conditions involve several parameters: the intensity of competition between banks and between merchants; the elasticities of de...