Efficiency and Competition between Payment Instruments
AbstractA 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 InfoIf 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.
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 InfoArticle provided by De Gruyter in its journal Review of Network Economics.
Volume (Year): 5 (2006)
Issue (Month): 1 (March)
Contact details of provider:
Web page: http://www.degruyter.com
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- James McAndrews & Zhu Wang, 2012.
"The economics of two-sided payment card markets: pricing, adoption and usage,"
12-06, Federal Reserve Bank of Richmond.
- 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.
- Zenger, Hans, 2010. "Perfect surcharging and the tourist test interchange fee," MPRA Paper 27004, University Library of Munich, Germany.
- Damien Neven & Miguel Mano, 2009. "Economics at DG Competition, 2008–2009," Review of Industrial Organization, Springer, vol. 35(4), pages 317-347, December.
- 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.
- František Bartes, Jitka Studeníková, 2010. "Payment System Competitiveness," Equilibrium, Uniwersytet Mikolaja Kopernika, vol. 2, pages 93-101.
- 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.
- James McAndrews & Zhu Wang, 2007. "Microfoundations of Two-sided Markets: The Payment Card Example," DNB Working Papers 128, Netherlands Central Bank, Research Department.
- 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.
- Jean-Charles Rochet & Jean Tirole, 2007. "Must-Take Cards and the Tourist Test," DNB Working Papers 127, Netherlands Central Bank, Research Department.
- 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.
- Rochet, Jean-Charles & Tirole, Jean, 2008. "Must-Take Cards: Merchant Discounts and Avoided Costs," IDEI Working Papers 496, Institut d'Économie Industrielle (IDEI), Toulouse.
- Zenger, Hans, 2011. "Perfect surcharging and the tourist test interchange fee," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2544-2546, October.
- 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.).
- Wilko Bolt & Sujit Chakravorti, 2010. "Digitization of Retail Payment," DNB Working Papers 270, Netherlands Central Bank, Research Department.
- Rochet, Jean-Charles & Wright, Julian, 2009.
"Credit card interchange fees,"
Working Paper Series
1138, European Central Bank.
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.