Innovation and imitation. Competition between the US and China on third-party payment technology
| Published date | 02 October 2017 |
| DOI | https://doi.org/10.1108/JCEFTS-05-2017-0012 |
| Pages | 252-258 |
| Date | 02 October 2017 |
| Author | Ya-Wen Cheng,Su-Ying Hsu,Chu-Ping Lo |
| Subject Matter | Economics,International economics |
Innovation and imitation
Competition between the US and China on
third-party payment technology
Ya-Wen Cheng
National Taiwan University, Taipei, Taiwan
Su-Ying Hsu
Department of International Business,
Southern Taiwan University of Science and Technology, Tainan, Taiwan, and
Chu-Ping Lo
Department of Agricultural Economics,
National Taiwan University, Taipei, Taiwan
Abstract
Purpose –Third-party paymentswere first introduced by the US firm PayPal. Soon after, China developed
a localized version of PayPal –Alipay, which became the main payment method for online transactions in
China. Currently, the number of globaltransactions conducted with Alipay is three times that of PayPal. In
addition to online transactions, Alipay also integrates with mobile payment applications to provide offline
services, making physicaltransactions more convenient for users. The authors,in this paper, aim to address
how third-partypayments technology seems to be playingout an innovation-imitation-catch up story.
Design/methodology/approach –Krugman (1966) proposed a general-equilibrium model of product
cycles under perfect competition where high-tech products are innovated by an “advanced”country and
imitated by a “developing”country.The competition between US–China online technologies(e.g. third-party
payments)seems to be playing out this innovation-imitation-catchup story.
Findings –The USA has already put a lot of effort intothe operations of credit cards and checks, as well as
other infrastructure such as human resources and installation of relevant systems. China lacks the
infrastructure for payments made with credit cards and checks, and therefore China’s opportunity cost of
moving directly from cash transactionsto third-party payments is much less than that of the USA, which is
why China holdsfollower advantage in third-party payment markets.
Originality/value –The third-party paymenttechnologies appear to be a good example of the argument
made by Krugman (1966) regardingthe US–China competition on advanced technology, whichstates that an
imitatorcan catch up with an inventor when the former acquirescomparative advantages againstthe latter.
Keywords Electronic commerce, Internet banking, Third-party payments
Paper type Research paper
1. Introduction
Krugman (1966) proposed a general-equilibrium model of product cycles under perfect
competition where high-techproducts are innovated by an “advanced”country and imitated
by a “developing”country. The advanced country holds technological advantages in the
production of high-tech goods throughemployment of its state-of the-art technology. Under
the law of comparative advantage,it is possible for the developing country, with lower wage
JEL classification –O14
JCEFTS
10,3
252
Journalof Chinese Economic and
ForeignTrade Studies
Vol.10 No. 3, 2017
pp. 252-258
© Emerald Publishing Limited
1754-4408
DOI 10.1108/JCEFTS-05-2017-0012
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