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Fraud, investments and liability regimes in payment platforms

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  • Creti, Anna
  • Verdier, Marianne
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    Abstract

    In this paper, we discuss how fraud liability regimes impact the price structure that is chosen by a monopolistic payment platform, in a setting where merchants can invest in fraud detection technologies. We show that liability allocation rules distort the price structure charged by platforms or banks to consumers and merchants with respect to a case where such a responsibility regime is not implemented. We determine the allocation of fraud losses between the payment platform and the merchants that maximises the platform's profit and we compare it to the allocation that maximises social welfare. JEL Classification: G21, L31, L42

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    Bibliographic Info

    Paper provided by European Central Bank in its series Working Paper Series with number 1390.

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    Date of creation: Oct 2011
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    Handle: RePEc:ecb:ecbwps:20111390

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    Related research

    Keywords: fraud; interchange fees; liability; Payment card systems; two-sided markets;

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    1. Julian Wright, 2004. "The Determinants of Optimal Interchange Fees in Payment Systems," Journal of Industrial Economics, Wiley Blackwell, vol. 52(1), pages 1-26, 03.
    2. Marianne Verdier, 2011. "Interchange Fees In Payment Card Systems: A Survey Of The Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 25(2), pages 273-297, 04.
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