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Externalities and Regulation in Card Payment Systems

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  • Rochet Jean-Charles

    ()
    (IDEI, Toulouse University)

  • Tirole Jean

    (IDEI, Toulouse University, and MIT)

Abstract

The paper offers a roadmap to the current economic thinking concerning interchange fees. After describing the fundamental externalities inherent in payment systems and analysing merchant resistance to interchange fee increases and the associations' determination of this fee, it derives the externalities' implications for welfare analysis. It then discusses whether consumer surplus or social welfare is the proper benchmark for regulatory purposes. Finally, it offers a critique of the current regulatory approach, and concludes with a call for more novel and innovative thinking about how to reconcile regulators' concerns and the industry legitimate desire to perform its balancing act.

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Bibliographic Info

Article provided by De Gruyter in its journal Review of Network Economics.

Volume (Year): 5 (2006)
Issue (Month): 1 (March)
Pages: 1-14

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Handle: RePEc:bpj:rneart:v:5:y:2006:i:1:n:1

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Citations

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Cited by:
  1. James McAndrews & Zhu Wang, 2008. "The economics of two-sided payment card markets: pricing, adoption and usage," Research Working Paper RWP 08-12, Federal Reserve Bank of Kansas City.
  2. Wilko Bolt & Sujit Chakravorti, 2010. "Digitization of Retail Payment," DNB Working Papers 270, Netherlands Central Bank, Research Department.
  3. James McAndrews & Zhu Wang, 2007. "Microfoundations of Two-sided Markets: The Payment Card Example," DNB Working Papers 128, Netherlands Central Bank, Research Department.
  4. Cyril Monnet & William Roberds, 2006. "Credit and the no-surcharge rule," Working Paper 2006-25, Federal Reserve Bank of Atlanta.
  5. Jonathan Zinman, 2005. "Debit or credit?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston.
  6. Wang, Zhu, 2010. "Market structure and payment card pricing: What drives the interchange?," International Journal of Industrial Organization, Elsevier, vol. 28(1), pages 86-98, January.
  7. Kahn, Charles M. & Roberds, William, 2009. "Why pay? An introduction to payments economics," Journal of Financial Intermediation, Elsevier, vol. 18(1), pages 1-23, January.
  8. Zhu Wang, 2008. "Market structure and credit card pricing: what drives the interchange?," Payments System Research Working Paper PSR WP 06-04, Federal Reserve Bank of Kansas City.
  9. Cyril Monnet & William Roberds, 2007. "Optimal pricing of payment services when cash is an alternative," Working Papers 07-26, Federal Reserve Bank of Philadelphia.
  10. Marcos Valli Jorge & Wilfredo Leiva Maldonado, 2013. "Price Differentiation and Menu Costs in Credit Card Payments," Working Papers Series 315, Central Bank of Brazil, Research Department.
  11. David S. Evans, 2009. "The Online Advertising Industry: Economics, Evolution, and Privacy," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 37-60, Summer.
  12. Frans Saxén, 2014. "The No Surcharge Rule and Merchant Competition," Journal of Industry, Competition and Trade, Springer, vol. 14(1), pages 39-66, March.
  13. Manjong Lee, 2013. "Constrained or Unconstrained Price for Debit Card Payment?," Discussion Paper Series 1308, Institute of Economic Research, Korea University.
  14. Monnet, Cyril & Roberds, William, 2008. "Optimal pricing of payment services," Journal of Monetary Economics, Elsevier, vol. 55(8), pages 1428-1440, November.
  15. Benjamin Lester & Andrew Postlewaite & Randall Wright, 2008. "Information, Liquidity and Asset Prices," PIER Working Paper Archive 08-039, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.

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