This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Who pays for credit cards?

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Sujit Chakravorti
William R. Emmons

Additional information is available for the following registered author(s):

Abstract

We model side payments in a competitive credit-card market. If competitive retailers charge a single (higher) price to cover the cost of accepting cards, banks must subsidize convenience users to prevent them from defecting to merchants who do not accept cards. The side payments will be financed by card users who roll over balances at interest if their subjective discount rates are high enough. Despite the feasibility of cross subsidies among cardholders, price discrimination without side payments is Pareto preferred because of the costliness of the card network--unless banks have other motives, such as purchasing options on future borrowing by convenience users.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.chicagofed.org/publications/publicpolicystudies/emergingpayments/pdf/eps-2001-1.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Federal Reserve Bank of Chicago in its series Occasional Paper; Emerging Payments with number EPS-2001-1.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 2001
Date of revision:
Handle: RePEc:fip:fedhop:eps-2001-1

Contact details of provider:
Postal: P.O. Box 834, 230 South LaSalle Street, Chicago, Illinois 60690-0834
Phone: 312/322-5111
Fax: 312/322-5515
Email:
Web page: http://www.chicagofed.org/
More information through EDIRC

Order Information:
Email:
Web: http://www.frbchi.org/pubs-speech/publications/print_order_script.html

For technical questions regarding this item, or to correct its listing, contact: (Diane Rosenberger).

Related research
Keywords: Credit cards ; Payment systems;

Other versions of this item:

This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Ausubel, Lawrence M, 1991. "The Failure of Competition in the Credit Card Market," American Economic Review, American Economic Association, vol. 81(1), pages 50-81, March.
  2. Paul S. Calem & Loretta J. Mester, 1995. "Consumer behavior and the stickiness of credit card interest rates," Working Papers 95-10, Federal Reserve Bank of Philadelphia.
    Other versions:
  3. Brito, Dagobert L & Hartley, Peter R, 1995. "Consumer Rationality and Credit Cards," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 400-433, April. [Downloadable!] (restricted)
  4. Jean-Charles Rochet & Jean Tirole, 2002. "Cooperation Among Competitors: Some Economics Of Payment Card Associations," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 549-570, Winter.
  5. Joanna Stavins, 1996. "Can demand elasticities explain sticky credit card rates?," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 43-54. [Downloadable!]
  6. JOHN M. Barron & MICHAEL E. Staten & JOHN Umbeck, 1992. "Discounts For Cash In Retail Gasoline Marketing," Contemporary Economic Policy, Western Economic Association International, vol. 10(4), pages 89-102, October. [Downloadable!] (restricted)
  7. Hester, Donald D, 1972. "Monetary Policy in the 'Checkless' Economy," Journal of Finance, American Finance Association, vol. 27(2), pages 279-93, May. [Downloadable!] (restricted)
  8. Troesken, Werner, 1997. "The," Journal of Law, Economics and Organization, Oxford University Press, vol. 13(1), pages 1-25, April.
  9. Baxter, William F, 1983. "Bank Interchange of Transactional Paper: Legal and Economic Perspectives," Journal of Law & Economics, University of Chicago Press, vol. 26(3), pages 541-88, October.
  10. Kirstin E. Wells, 1996. "Are checks overused?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 2-12. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Sujit Chakravorti & Ted To, 1999. "Toward a theory of merchant credit card acceptance," Working Paper Series WP-99-16, Federal Reserve Bank of Chicago. [Downloadable!]
  2. Robert Hunt, 2003. "Antitrust issues in payment card networks: can they do that? should we let them?," Business Review, Federal Reserve Bank of Philadelphia, issue Q2, pages 14-23. [Downloadable!]
  3. Joshua S. Gans & Stephen P. King, 2003. "Approaches to Regulating Interchange Fees in Payment Systems," Review of Network Economics, Concept Economics, vol. 2(2), pages 125-145, June. [Downloadable!]
  4. Sujit Chakravorti, 2003. "Theory of Credit Card Networks: A Survey of the Literature," Review of Network Economics, Concept Economics, vol. 2(2), pages 50-68, June. [Downloadable!]
    Other versions:
  5. Robert M. Hunt, 2003. "An introduction to the economics of payment card networks," Working Papers 03-10, Federal Reserve Bank of Philadelphia. [Downloadable!]
    Other versions:
  6. Wilko Bolt & Sujit Chakravorti, 2008. "Economics of payment cards: a status report," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 15-27. [Downloadable!]
  7. Sujit Chakravorti & Roberto Roson, 2006. "Platform Competition in Two-Sided Markets: The Case of Payment Networks," Review of Network Economics, Concept Economics, vol. 5(1), pages 118-143, March. [Downloadable!]
    Other versions:
  8. William W. Lang & Loretta J. Mester & Todd A. Vermilyea, 2007. "Competitive effects of Basel II on U.S. bank credit card lending," Working Papers 07-9, Federal Reserve Bank of Philadelphia. [Downloadable!]
    Other versions:
  9. Wilko Bolt & Alexander F. Tieman, 2006. "Social Welfare and Cost Recovery in Two-Sided Markets," Review of Network Economics, Concept Economics, vol. 5(1), pages 103-117, March. [Downloadable!]
    Other versions:
  10. Julian Wright, 2001. "The Determinants of Optimal Interchange Fees in Payment Systems," Industrial Organization 0108001, EconWPA. [Downloadable!]
    Other versions:
  11. Marius Schwartz & Daniel R. Vincent, 2006. "The No Surcharge Rule and Card User Rebates: Vertical Control by a Payment Network," Review of Network Economics, Concept Economics, vol. 5(1), pages 72-102, March. [Downloadable!]
  12. William W. Lang & Loretta J. Mester & Todd A. Vermilyea, 2005. "Potential competitive effects on U.S. bank credit card lending from the proposed bifurcated application of Basel II," Working Papers 05-29, Federal Reserve Bank of Philadelphia. [Downloadable!]
  13. Tara Rice, 2003. "The importance of payments-driven revenues to franchise value and in estimating bank performance," Emerging Issues, Federal Reserve Bank of Chicago. [Downloadable!]
  14. Roberto Roson, 2005. "Two-Sided Markets: A Tentative Survey," Review of Network Economics, Concept Economics, vol. 4(2), pages 142-160, June. [Downloadable!]
  15. Wilko Bolt & Sujit Chakravorti, 2008. "Consumer choice and merchant acceptance of payment media," Working Paper Series WP-08-11, Federal Reserve Bank of Chicago. [Downloadable!]
    Other versions:
  16. Jean-Charles Rochet, 2003. "The Theory of Interchange Fees: A Synthesis of Recent Contributions," Review of Network Economics, Concept Economics, vol. 2(2), pages 97-124, June. [Downloadable!]
Statistics
Access and download statistics

Did you know? You can use IDEAS to provide links to papers and articles in your course syllabus.

This page was last updated on 2009-11-10.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.