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Optimal pricing of payment services

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Author Info

  • Monnet, Cyril
  • Roberds, William

Abstract

Payments are increasingly being made with payment cards despite the fact that the cost of clearing a card payment usually exceeds the cost of transferring cash. We examine this puzzle through the lens of monetary theory. We consider the design of an optimal card-based payment system when cash is available as an alternative means of payment. We find that a feature akin to the controversial "no-surcharge rule" may be necessary to ensure the viability of the card payment system. This rule states that merchants cannot charge a customer who pays by card more than a customer who pays by cash.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 55 (2008)
Issue (Month): 8 (November)
Pages: 1428-1440

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Handle: RePEc:eee:moneco:v:55:y:2008:i:8:p:1428-1440

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Web page: http://www.elsevier.com/locate/inca/505566

Related research

Keywords: Payment Credit card Debit card No-surcharge;

References

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  1. 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.
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Citations

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Cited by:
  1. Naoki Wakamori & Angelika Welte, 2012. "Why Do Shoppers Use Cash? Evidence from Shopping Diary Data," Working Papers 12-24, Bank of Canada.
  2. Scott Schuh & Oz Shy & Joanna Stavins & Robert Triest, 2011. "An economic analysis of the 2010 proposed settlement between the Department of Justice and credit card networks," Public Policy Discussion Paper 11-4, Federal Reserve Bank of Boston.
  3. Thorsten Koeppl & Cyril Monnet & Ted Temzelides, 2009. "Optimal Clearing Arrangements for Financial Trades," Working Papers 1222, Queen's University, Department of Economics.
  4. Mei Dong, 2009. "Money and Costly Credit," 2009 Meeting Papers 404, Society for Economic Dynamics.
  5. Jonker Nicole, 2011. "Card Acceptance and Surcharging: the Role of Costs and Competition," Review of Network Economics, De Gruyter, vol. 10(2), pages 1-35, June.
  6. Mariana Rojas Breu, 2013. "The Welfare Effect Of Access To Credit," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 235-247, 01.
  7. Nicole Jonker & Anneke Kosse & Lola Hern�ndez, 2012. "Cash usage in the Netherlands: How much, where, when, who and whenever one wants?," DNB Occasional Studies 1002, Netherlands Central Bank, Research Department.
  8. Jonathan Chiu & Mei Dong & Enchuan Shao, 2012. "On the Welfare Effects of Credit Arrangements," Working Papers 12-43, Bank of Canada.
  9. Pidong Huang & Young Sik Kim & Manjong Lee, 2014. "Optimal Allocation of Social Cost for Electronic Payment System: A Ramsey Approach," Discussion Paper Series 1402, Institute of Economic Research, Korea University.
  10. Pedro Gomis-Porqueras & Daniel R. Sanches, 2011. "Optimal monetary policy in a model of money and credit," Working Papers 11-28, Federal Reserve Bank of Philadelphia.
  11. Jonathan Chiu & Tsz-Nga Wong, 2014. "E-Money: Efficiency, Stability and Optimal Policy," Working Papers 14-16, Bank of Canada.

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