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Efficient Pricing of Large Value Interbank Payment Systems

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  • Holthausen, Cornelia
  • Rochet, Jean Charles

Abstract

This Paper studies the efficient pricing of large-value payment systems in the presence of unobservable heterogeneity across banks. 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. In this case, however, optimal marginal fees in the public system are lower than its marginal cost, and fixed fees have to be levied. 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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3943.

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Date of creation: Jun 2003
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Handle: RePEc:cpr:ceprdp:3943

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Keywords: non-linear pricing; payment systems;

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References

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  1. Furfine, Craig H & Stehm, Jeff, 1998. "Analyzing Alternative Intraday Credit Policies in Real-Time Gross Settlement Systems," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(4), pages 832-48, November.
  2. Gasmi, Farid & Laffont, Jean-Jacques & Sharkey, William, 1999. "Competition, Universal Service and Telecommunications Policy in Developing Countries," IDEI Working Papers 92, Institut d'Économie Industrielle (IDEI), Toulouse.
  3. Holthausen, Cornelia & Rønde, Thomas, 2000. "Regulating access to international large-value payment systems," Working Paper Series 0022, European Central Bank.
  4. Wilson, Robert, 1997. "Nonlinear Pricing," OUP Catalogue, Oxford University Press, number 9780195115826, September.
  5. Charles M. Kahn & William Roberds, . "Payment System Settlement and Bank Incentives," Center for Financial Institutions Working Papers 97-32, Wharton School Center for Financial Institutions, University of Pennsylvania.
  6. Jean-Charles Rochet & Philippe Chone, 1998. "Ironing, Sweeping, and Multidimensional Screening," Econometrica, Econometric Society, vol. 66(4), pages 783-826, July.
  7. Angelini, P. & Giannini, C., 1993. "On the Economics of Interbank Payment Systems," Papers 193, Banca Italia - Servizio di Studi.
  8. Jean-Jacques Laffont & Jean Tirole, 2001. "Competition in Telecommunications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262621509, December.
  9. Hancock, Diana & Humphrey, David B. & Wilcox, James A., 1999. "Cost reductions in electronic payments: The roles of consolidation, economies of scale, and technical change," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 391-421, February.
  10. Bagnoli, M. & Bergstrom, T., 1989. "Log-Concave Probability And Its Applications," Papers 89-23, Michigan - Center for Research on Economic & Social Theory.
  11. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  12. Xavier Freixas & Bruno Parigi, 1998. "Contagion and efficiency in gross and net interbank payment systems," Proceedings 592, Federal Reserve Bank of Chicago.
  13. David Vanhoose, 2000. "Central bank policy making in competing payment systems," Atlantic Economic Journal, International Atlantic Economic Society, vol. 28(2), pages 117-139, June.
  14. Allen Berger & Diana Hancock & Jeffrey Marquardt, 1996. "A framework for analyzing efficiency, risks, costs and innovations in the payments system," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 696-732.
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Cited by:
  1. Kari Kemppainen, 2004. "Competition and regulation in European retail payment systems," Microeconomics 0404008, EconWPA.
  2. Nilssen,T., 2000. "Risk externalities in a payments oligopoly," Memorandum 10/2000, Oslo University, Department of Economics.
  3. Ben R. Craig & Falko Fecht, 2011. "Substitution between net and gross settlement systems: A concern for financial stability?," Working Paper 1132, Federal Reserve Bank of Cleveland.
  4. Bolt, Wilko & Humphrey, David, 2005. "Public good issues in TARGET: natural monopoly, scale economies, network effects and cost allocation," Working Paper Series 0505, European Central Bank.
  5. Jonathan Chiu & Alexandra Lai, 2007. "Modelling Payments Systems: A Review of the Literature," Working Papers 07-28, Bank of Canada.
  6. 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.

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