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A Theoretical Analysis of Credit Card Reform in Australia

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  • Joshua S. Gans
  • Stephen P. King

Abstract

The Reserve Bank of Australia (RBA) moved to reform credit card associations by increasing entry, allowing merchants to surcharge for card payments and regulating the interchange fee. We develop a simple model of payment systems designed to analyse the impact of these reforms. We build on the RBA's main assumptions and provide a justification for some of their concerns about excessive card use. Allowing merchants to surcharge may eliminate much of the concern over the interchange fee. On the other hand, the RBA's proposed interchange fee, based entirely on issuer costs, is unlikely to be socially optimal. Copyright 2003. The Economic Society of Australia.

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Bibliographic Info

Article provided by The Economic Society of Australia in its journal The Economic Record.

Volume (Year): 79 (2003)
Issue (Month): 247 (December)
Pages: 462-472

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Handle: RePEc:bla:ecorec:v:79:y:2003:i:247:p:462-472

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Cited by:
  1. Fumiko Hayashi, 2004. "A puzzle of card payment pricing : why are merchants still accepting card payments?," Payments System Research Working Paper PSR WP 04-02, Federal Reserve Bank of Kansas City.
  2. Evans, David & Schmalensee, Richard, 2005. "The Economics of Interchange Fees and Their Regulation: An Overview," Working papers 18181, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  3. Graeme Guthrie & Julian Wright, 2007. "COMPETING PAYMENT SCHEMES -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 55(1), pages 37-67, 03.
  4. Rochet Jean-Charles, 2003. "The Theory of Interchange Fees: A Synthesis of Recent Contributions," Review of Network Economics, De Gruyter, vol. 2(2), pages 1-28, June.
  5. Chakravorti Sujit, 2003. "Theory of Credit Card Networks: A Survey of the Literature," Review of Network Economics, De Gruyter, vol. 2(2), pages 1-19, June.
  6. Robert M. Hunt, 2003. "An introduction to the economics of payment card networks," Working Papers 03-10, Federal Reserve Bank of Philadelphia.
  7. Fabio M. Manenti & Ernesto Somma, 2002. "Plastic Clashes: Competition among Closed and Open Systems in the Credit Card Industry," Industrial Organization 0211012, EconWPA.
  8. Aysan, Ahmet Faruk & Lerzan, Yildiz, 2006. "The Regulation of the Credit Card Market in Turkey," MPRA Paper 5490, University Library of Munich, Germany.
  9. Sandra Deungoue, 2008. "Compétition pour les paiements : une titanomachie revisitée par la modélisation multi-agents," Working Papers 0810, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  10. Sandra Deungoue, 2008. "Compétition pour les paiements : une titanomachie revisitée par la modélisation multi-agents," Post-Print halshs-00269129, HAL.
  11. Abbas Valadkhani & Sajid Anwar & Amir Arjonandi, 2012. "How to capture the full extent of price stickiness in credit card interest rates?," Economics Working Papers wp12-02, School of Economics, University of Wollongong, NSW, Australia.
  12. Fumiko Hayashi & Stuart E. Wiener, 2006. "Interchange fees in Australia, the UK, and the United States : matching theory and practice," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 75-112.

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