Access pricing, data externalities and sub-acquirers in payment markets

This paper analyses how the introduction of sub-acquirers affects the pricing and market structure in the payment market. When the sub-acquirers and acquirers compete in the same downstream market, the acquirer allows socially desirable entry as they can extract total efficiency gains through the access fee paid by sub-acquirers. However, when large data externalities and bargaining power of sub-acquirers are introduced, the acquirer has incentives to deter entry due to imperfect rent extraction. Separately, when the sub-acquirers enter niche markets, the acquirer obtains extra profits, and thus has no incentives to foreclose