The economics of payment card fee structure: what is the optimal balance between merchant fee and payment card rewards?
AbstractThis paper theoretically considers the optimal balance between the merchant fee and the cardholder fee (rewards) from both efficiency and equity perspectives. First, the paper constructs the models that can be used by the U.S. policymakers. Because theoretical results are very sensitive to the assumptions of the models, it is important to construct models that reflect the reality of the market. Second, the most efficient fee structure and product price are considered under the various combinations of the assumptions. And finally, the paper considers welfare consequences of the most efficient fee structure. ; Also issued as a Payments System Research Working Paper.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Kansas City in its series Research Working Paper with number RWP 08-06.
Date of creation: 2008
Date of revision:
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