Here are two market fokelores that have fascinated me for a while.
a tale of credit cards
Consider the payment market in dining. Cash payments at restaurants are cumbersome, and checks are unreliable. The advent of digital card payments introduced a more convenient alternative for consumers. Credit cards generate interest for issuers, as they essentially lend money. However, this innovation doesn’t benefit every market segment equally.
Credit card issuers operate in a space between monopolistic competition and oligopoly, characterized by high barriers to entry due to network effects—a platform that bridges consumers and businesses, where both diners and restaurants prefer the other side to be as extensive as possible. Credit card companies offer cashbacks to cardholders, while businesses pay transaction fees for their services. These cashbacks and exclusive discounts, funded by the transaction fees charged to businesses, are a way for credit card companies to indirectly compete. This structure allows companies to shift competition “behind the curtain,” with benefits paid for by businesses and invisibly transferred back to consumers through price increases. Consequently, cash users bear the brunt of higher prices without enjoying any benefits.
Despite market saturation, the credit card business remains profitable. For instance, nowaays even Sephora issues credit cards with attractive discounts on their own beauty products. However, Sephora’s primary goal likely isn’t the interest income but rather to cultivate a loyal customer base amid intense competition, such as with Ulta Beauty.
speaking of repugnant kidney markets
欲知后事如何 且听下回分解: To be continued…