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Efficient Pricing of Large Value Interbank Payment Systems

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Author Info
Holthausen, Cornelia
Rochet, Jean-Charles

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Abstract

This paper studies the pricing of large-value payment systems and its influence on the way commercial banks route their payments. It is shown that the optimal pricing scheme for a public monopoly system involves quantity discounts in the form of a decreasing marginal fee. This is also true when the public system competes with a private system characterized by a lower marginal cost. However in this case, optimal marginal fees in the public system are lower than its marginal cost, and fixed fees have to be levied. We show that if the Central Bank wants the public system to be used by a significant proportion of the banks, this may be incompatible with full cost recovery. We also study the case of competition between several public systems. The structure of the optimal tariff depends on the willingness of Central Banks to allow by-pass.

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File URL: http://dx.doi.org/10.1353/mcb.2006.0093
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Publisher Info
Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 38 (2006)
Issue (Month): 7 (October)
Pages: 1797-1818
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Handle: RePEc:mcb:jmoncb:v:38:y:2006:i:7:p:1797-1818

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Wilko Bolt & David B. Humphrey, 2005. "Public Good Aspects of TARGET: Natural Monopoly, Scale Economies, and Cost Allocation," DNB Working Papers 036, Netherlands Central Bank, Research Department. [Downloadable!]
  2. Jonathan Chiu & Alexandra Lai, 2007. "Modelling Payments Systems: A Review of the Literature," Working Papers 07-28, Bank of Canada. [Downloadable!]
  3. Wilko Bolt & David Humphrey, 2005. "Public good issues in TARGET - natural monopoly, scale economies, network effects and cost allocation," Working Paper Series 505, European Central Bank. [Downloadable!]
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