Examining Inertia in Cross-Border Cooperation among European Mobile P2P Payment Services: A Game Theoretic Approach

Abstract: In a time where technological development and globalization are concurrently expanding, markets must learn to adapt. Mobile P2P payment services in Europe have achieved high national adoption rates but have not been able to cooperate to meet the growing demand for cross-border payments, despite efforts made by both the EU and private payment service providers. The aim of this paper is to understand and explain the current situation of inertia in international cooperation between mobile payment services, an area with limited previous research. Accordingly, we construct a game theoretic model in which firms simultaneously decide whether to switch to a new technology that allows for compatibility or to stay with an incompatible technology. The results show that differing preferences for compatibility and weak expectations may prevent coordination on a mutually beneficial cross-border solution. Another finding is that, due to the strong network externalities present in the industry, there is a possibility of overcoming inertia through what we refer to as a "bandwagon effect". Finally, we suggest that the threat of new technological payment solutions, such as cryptocurrencies, may increase the willingness to cooperate among incumbent firms in the mobile P2P payments industry.