Economies of Scale in the Payment Card Market in Chile

Abstract

Purpose: In recent years, the growth of credit and debit card transactions has increased significantly in quantity and volume. This work examines the existence of economies of scale in transaction processing, in a market with a vertically integrated. Design/Methodology/Approach: it was constructed an econometric model to measure whether there are economies of scale in the commercial transactions with credit and debit cards. A data Panel technique was used to run the model. Findings: The existence of a monopoly is not in itself a problem per se, what does create competition problems is the structure of that firm. After estimating the panel's data model indirectly from a cost function, this work determines the existence of economies of scale in the industry. Practical Implications: The model shows the existence of economies of scale in transaction processing after the entry of new actors in all segments of the industry, which increases the competition in the market. Originality/Value: This research contributes to the literature by estimating economies of scale in the payment card trading processing market in a two-sided market, which implies lower costs to make transaction with these cards and induces the entry of new actors to compete in a fringe of competitive firms.