Advanced Search
MyIDEAS: Login to save this article or follow this journal

Efficiency and Competition between Payment Instruments

Contents:

Author Info

  • Farrell Joseph

    ()
    (University of California, Berkeley)

Abstract

A payment instrument that disproportionately charges merchants (as with high interchange) can take business from others that offer the two-sided customer better deals. This competitive bias arises because merchants internalize cardholders' benefits (even without merchant competition). Use of an instrument with high merchant fees also raises prices paid by other consumers, a non-pecuniary externality. While it can be allocatively efficient to tax rivals of a firm (or cooperative) with market power, competition policy urges otherwise. The competitive bias and the externality on other consumers vanish when competing payment instruments are equally costly to merchants, suggesting a simple policy benchmark.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.degruyter.com/view/j/rne.2006.5.1/rne.2006.5.1.1087/rne.2006.5.1.1087.xml?format=INT
Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

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

Volume (Year): 5 (2006)
Issue (Month): 1 (March)
Pages: 1-19

as in new window
Handle: RePEc:bpj:rneart:v:5:y:2006:i:1:n:3

Contact details of provider:
Web page: http://www.degruyter.com

Order Information:
Web: http://www.degruyter.com/view/j/rne

Related research

Keywords:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. James McAndrews & Zhu Wang, 2012. "The economics of two-sided payment card markets: pricing, adoption and usage," Working Paper 12-06, Federal Reserve Bank of Richmond.
  2. Zenger, Hans, 2010. "Perfect surcharging and the tourist test interchange fee," MPRA Paper 27004, University Library of Munich, Germany.
  3. Damien Neven & Miguel Mano, 2009. "Economics at DG Competition, 2008–2009," Review of Industrial Organization, Springer, vol. 35(4), pages 317-347, December.
  4. 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.
  5. František Bartes, Jitka Studeníková, 2010. "Payment System Competitiveness," Equilibrium, Uniwersytet Mikolaja Kopernika, vol. 2, pages 93-101.
  6. James McAndrews & Zhu Wang, 2006. "Microfoundations of two-sided markets: the payment card example," Payments System Research Working Paper PSR WP 06-01, Federal Reserve Bank of Kansas City.
  7. Dragoi, Ionut Mihai, 2013. "The Interchange Fees - A Comparison between Optimal Private and Social Levels," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 24-38, March.
  8. Jean-Charles Rochet & Jean Tirole, 2007. "Must-Take Cards and the Tourist Test," DNB Working Papers 127, Netherlands Central Bank, Research Department.
  9. Jean‐Charles Rochet & Jean Tirole, 2011. "Must‐Take Cards: Merchant Discounts And Avoided Costs," Journal of the European Economic Association, European Economic Association, vol. 9(3), pages 462-495, 06.
  10. Zenger, Hans, 2011. "Perfect surcharging and the tourist test interchange fee," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2544-2546, October.
  11. Robin A. Prager & Mark D. Manuszak & Elizabeth K. Kiser & Ron Borzekowski, 2009. "Interchange fees and payment card networks: economics, industry developments, and policy issues," Finance and Economics Discussion Series 2009-23, Board of Governors of the Federal Reserve System (U.S.).
  12. Wilko Bolt & Sujit Chakravorti, 2010. "Digitization of Retail Payment," DNB Working Papers 270, Netherlands Central Bank, Research Department.
  13. Rochet, Jean-Charles & Wright, Julian, 2009. "Credit card interchange fees," Working Paper Series 1138, European Central Bank.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:bpj:rneart:v:5:y:2006:i:1:n:3. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.