Regulating two-sided markets: an empirical investigation
AbstractWe study the effect of government encouraged or mandated interchange fee ceilings on consumer and merchant adoption and usage of payment cards in an economy where card acceptance is far from complete. We believe that we are the first to use bank-level data to study the impact of interchange fee regulation. We find that consumer and merchant welfare improved because of increased consumer and merchant adoption leading to greater usage of payment cards. We also find that bank revenues increased when interchange fees were reduced although these results are critically dependent on merchant acceptance being far from complete at the beginning and during the implementation of interchange fee ceilings. In addition, there is most likely a threshold interchange fee below which social welfare decreases although our data currently does not allow us to quantify it. JEL Classification: L11, G21, D53
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Bibliographic InfoPaper provided by European Central Bank in its series Working Paper Series with number 1137.
Date of creation: Dec 2009
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Other versions of this item:
- Santiago Carbó Valverde & Sujit Chakravorti & Francisco Rodríguez-Fernández, 2009. "Regulating two-sided markets: an empirical investigation," Working Paper Series WP-09-11, Federal Reserve Bank of Chicago.
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-01-30 (All new papers)
- NEP-COM-2010-01-30 (Industrial Competition)
- NEP-NET-2010-01-30 (Network Economics)
- NEP-REG-2010-01-30 (Regulation)
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