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Cooperation Among Competitors: Some Economics Of Payment Card Associations

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  • Jean-Charles Rochet
  • Jean Tirole

Abstract

We analyze platforms in two-sided markets with network externalities, using the specific context of a payment card association. We study the cooperative determination of the interchange fee by member banks. The interchange fee is the ``access charge'' paid by the merchants' banks (the acquirers) to cardholders' banks (the issuers). We develop a framework in which banks and merchants may have market power and consumers and merchants decide rationally on whether to buy or accept a payment card. After drawing the welfare implications of a cooperative determination of the interchange fee, we describe in detail the factors affecting merchant resistance, compare cooperative and for-profit business models, and make a first cut in the analysis of system competition.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 33 (2002)
Issue (Month): 4 (Winter)
Pages: 549-570

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Handle: RePEc:rje:randje:v:33:y:2002:i:winter:p:549-570

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