Competitive dynamics in a multi-sided mobile payment platform market: an agent-based modeling perspective

Abstract

Purpose

The purpose of this research is to develop a comprehensive model to better understand competitive dynamics between mobile payment providers in a multi-sided market featuring customers and merchants. This is undertaken by modeling customers performing financial transactions with merchants while two mobile payment systems (MPS) providers deploy different strategies to compete for market share.

Design/methodology/approach

The authors developed an agent-based simulation model using the NetLogo environment. The simulation featured two competing platform providers, 1,000 customer agents and 50 merchant agents. Past research, interviews and surveys were conducted to accurately model the behavior of the agents. Each simulation run lasted for 50 time periods. A total of 1,024 experimental conditions were designed to model different competitive environments, and 50 replications were conducted for a total of 51,200 experiments.

Findings

The simulation model provides insight into MPS platform providers’ competitive strategies by simultaneously modelling socioeconomic interactions between customers, merchants and MPS.

Research limitations/implications

From a methodological perspective, the paper contributes a comprehensive model that can be used to study competitive dynamics between competing platforms in a multi-sided market. From the perspective of competitive strategies, the results show that pricing alone is not sufficient to influence MPS diffusion. Interactions between pricing, customers’ risk perception, perceived security and ease of use of the platform create unexpected same-side and cross-side network effects, which affect MPS diffusion.

Practical implications

While pricing remains a crucial lever for MPS to compete for market share, they should focus on enhancing customers’ and merchants’ trust and reduce their risk perception. This can be done through the improvement of the user experience of their platform, development of educational materials and marketing campaigns that address concerns around security, data breaches and perceived risk.

Originality/value

The paper is a direct response to a recent call for action on studying competition between MPS platforms by simultaneously modelling the socio-economic behavior of heterogeneous consumers and merchants. The proposed agent-based simulation model can be used to provide insights into competitive strategies and as a building block for subsequent research in this area.

Citation

Zaffar, M.A., Kumar, R. and Zhao, K. (2024), "Competitive dynamics in a multi-sided mobile payment platform market: an agent-based modeling perspective", International Journal of Bank Marketing, Vol. 42 No. 7, pp. 2023-2050. https://doi.org/10.1108/IJBM-11-2023-0610