Learn about the people who benefit most from reading Market Platform Dynamics' book on Paying with Plastic

David S. Evans and Richard Schmalensee
MIT Press, 2nd ed., 2005

Payment cards have revolutionized how we coordinate the timing of when we purchase goods and services and when we pay for them. The popular media often focus on how credit cards, by making it much quicker and easier to borrow, encourage people to spend beyond their means and get mired in debt. Although removing the hassle from the process of borrowing has allowed some people to borrow too much, credit cards have enabled many more of us to achieve a better standard of living. The millions of people who finance purchases on credit cards want to enjoy life earlier than their current incomes and savings permit. Credit cards enable them to do so.

Building upon the first edition, published in 1999, this book is fundamentally about the complex industry that lies behind the revolution in how we pay and how we finance. But it has several other stories to tell. One is about how the entrepreneurs behind the payment card industry solved the classic "chicken-and-egg" problem. Consumers do not want cards that merchants do not take, and merchants do not want cards that consumers do not have. Another story is about how the payment card industry was shaped by the highly localized nature of the American banking industry. Credit cards were developed by two bank associations – MasterCard and Visa – which now have thousands of members across the country, ranging from the smallest credit unions to the largest commercial banks. A further story concerns the legal battles that have embroiled these associations, Visa primarily, throughout their existence. These battles have resulted from the collision of associations that have developed a creative and productive mixture of collaboration and competition among its members with antitrust laws that are highly skeptical of any collaboration among competitors.

The book also brings an economic perspective to bear on the payment card industry. It examines the evolution of this industry through the lens of economics, with a particular focus on how economic forces have combined with institutional and technological ones to shape this industry, and in showing how competition works in an industry that does not fit neatly into any of the standard models used by economists. An important point made in the book is that the antitrust charges against the credit card associations often stem from a lack of understanding of how competition works in the payment card industry and from a failure to recognize the need for creative solutions to the special problems that affect this unique industry. This book explains how this industry works and argues that it works remarkably well.

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Paying with Plastic is now available in Chinese. Buy the Chinese edition here.

Reviews:
"Evans and Schmalensee's Paying with Plastic provides a rigorous analysis and deep insights about the payment card industry's fascinating institutional features. This book will appeal not only to policymakers and business executives, but also to the theoretically inclined economist. The second edition embodies much new material, including recent advances to two-sided market economics (to which the authors have made substantial contributions). A remarkable achievement."

-- Dr. Jean Tirole, Institut d'Economie Industrielle, Toulouse