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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 about banks' future payment volumes. 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 provate 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 also study the case of competition between several public systems. The structure of the optimal tariff depends on the willigness of Central Banks to allow by-pass. JEL Classification: G28, E58, D42, D43

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Paper provided by European Central Bank in its series Working Paper Series with number 0184.

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Date of creation: Oct 2002
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Handle: RePEc:ecb:ecbwps:20020184

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Keywords: mixed duopoly; non-linear pricing; payment systems; public monopoly;

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References

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  1. Jean-Jacques Laffont & Jean Tirole, 2001. "Competition in Telecommunications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262621509, December.
  2. 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.
  3. Xavier Freixas & Bruno Parigi, 1996. "Contagion and efficiency in gross and net interbank payment systems," Economics Working Papers 176, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 1996.
  4. Gasmi, F. & Laffont, J. J. & Sharkey, W. W., 2000. "Competition, universal service and telecommunications policy in developing countries," Information Economics and Policy, Elsevier, vol. 12(3), pages 221-248, September.
  5. 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.
  6. Cornelia Holthausen & Thomas R¯nde, 2002. "Regulating Access to International Large-Value Payment Systems," Review of Financial Studies, Society for Financial Studies, vol. 15(5), pages 1561-1586.
  7. Charles M. Kahn & William Roberds, 1996. "Payment system settlement and bank incentives," Working Paper 96-10, Federal Reserve Bank of Atlanta.
  8. 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.
  9. Angelini, P. & Giannini, C., 1993. "On the Economics of Interbank Payment Systems," Papers 193, Banca Italia - Servizio di Studi.
  10. Jean-Charles Rochet & Philippe Chone, 1998. "Ironing, Sweeping, and Multidimensional Screening," Econometrica, Econometric Society, vol. 66(4), pages 783-826, July.
  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. 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.
  13. Mark Bagnoli & Ted Bergstrom, 2005. "Log-concave probability and its applications," Economic Theory, Springer, vol. 26(2), pages 445-469, 08.
  14. Wilson, Robert, 1997. "Nonlinear Pricing," OUP Catalogue, Oxford University Press, number 9780195115826.
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Cited by:
  1. Nilssen,T., 2000. "Risk externalities in a payments oligopoly," Memorandum 10/2000, Oslo University, Department of Economics.
  2. Craig, Ben & Fecht, Falko, 2011. "Substitution between net and gross settlement systems: A concern for financial stability?," Discussion Paper Series 1: Economic Studies 2011,16, Deutsche Bundesbank, Research Centre.
  3. 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.
  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. Kari Kemppainen, 2004. "Competition and regulation in European retail payment systems," Microeconomics 0404008, EconWPA.

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