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Theory of credit card networks: a survey of the literature

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Author Info
Sujit Chakravorti

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Abstract

Credit cards provide benefits to consumers and merchants not provided by other payment instruments as evidenced by their explosive growth in the number and value of transactions over the last 20 years. Recently, credit card networks have come under scrutiny from regulators and antitrust authorities around the world. The costs and benefits of credit cards to network participants are discussed. Focusing on interrelated bilateral transactions, several theoretical models have been constructed to study the implications of several business practices of credit card networks. The results and implications of these economic models along with future research topics are discussed.

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Publisher Info
Paper provided by Federal Reserve Bank of Philadelphia in its series Payment Cards Center Discussion Paper with number 03-09.

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Date of creation: 2003
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Publication status: Published in Review of Network Economics, v. 2. no. 2 (June 2003, pp 50-68)
Handle: RePEc:fip:fedpdp:03-09

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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. Joshua Gans & Stephen King, 2003. "The Neutrality of Interchange Fees in Payment Systems," Topics in Economic Analysis & Policy, Berkeley Electronic Press, vol. 3(1), pages 1069-1069. [Downloadable!] (restricted)
  2. Sujit Chakravorti & Timothy McHugh, 2002. "Why do we use so many checks?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 44-59. [Downloadable!]
  3. ROCHET, Jean-Charles & TIROLE, Jean, 2003. "Platform Competition in Two-Sided Markets," IDEI Working Papers 152, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
    Other versions:
  4. 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.
  5. Hausman, Jerry A & Leonard, Gregory K & Tirole, Jean, 2003. " On Nonexclusive Membership in Competing Joint Ventures," RAND Journal of Economics, The RAND Corporation, vol. 34(1), pages 43-62, Spring.
    Other versions:
  6. Kitch, Edmund W, 1990. "The Framing Hypothesis: Is It Supported by Credit Card Issuer Opposition to a Surcharge on a Cash Price?," Journal of Law, Economics and Organization, Oxford University Press, vol. 6(1), pages 217-33, Spring.
  7. 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)
  8. Sujit Chakravorti, 2000. "Why has stored value not caught on?," Emerging Issues, Federal Reserve Bank of Chicago, issue May. [Downloadable!]
  9. 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.
  10. James J. McAndrews, 1997. "Network issues and payment systems," Business Review, Federal Reserve Bank of Philadelphia, issue Nov, pages 15-25. [Downloadable!]
  11. Sujit Chakravorti & William R. Emmons, 2001. "Who pays for credit cards?," Occasional Paper; Emerging Payments EPS-2001-1, Federal Reserve Bank of Chicago. [Downloadable!]
  12. Graeme Guthrie & Julian Wright, 2003. "Competing Payment Schemes," Departmental Working Papers wp0311, National University of Singapore, Department of Economics. [Downloadable!]
  13. 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)
  14. Wright, Julian, 2003. "Optimal card payment systems," European Economic Review, Elsevier, vol. 47(4), pages 587-612, August. [Downloadable!] (restricted)
  15. Julian Wright, 2001. "The Determinants of Optimal Interchange Fees in Payment Systems," Industrial Organization 0108001, EconWPA. [Downloadable!]
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  16. Wright, Julian, 2003. "Pricing in debit and credit card schemes," Economics Letters, Elsevier, vol. 80(3), pages 305-309, September. [Downloadable!] (restricted)
  17. 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.
  18. William P. Osterberg & James B. Thomson, 1998. "Network externalities: the catch-22 of retail payments innovations," Economic Commentary, Federal Reserve Bank of Cleveland, issue Feb 15. [Downloadable!]
  19. Chakravorti, Sujit & To, Ted, 2007. "A theory of credit cards," International Journal of Industrial Organization, Elsevier, vol. 25(3), pages 583-595, June. [Downloadable!] (restricted)
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. Jonathan Zinman, 2005. "Debit or credit?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston. [Downloadable!]
  2. Jonathan Zinman, 2004. "Why use debit instead of credit? Consumer choice in a trillion-dollar market," Staff Reports 191, Federal Reserve Bank of New York. [Downloadable!]
  3. James McAndrews & Zhu Wang, 2008. "The economics of two-sided payment card markets: pricing, adoption and usage," Research Working Paper RWP 08-12, Federal Reserve Bank of Kansas City. [Downloadable!]
  4. Julian Wright, 2004. "One-sided Logic in Two-sided Markets," Review of Network Economics, Concept Economics, vol. 3(1), pages 42-63, March. [Downloadable!]
  5. Sujit Chakravorti & Roberto Roson, 2004. "Platform competition in two-sided markets: the case of payment networks," Working Paper Series WP-04-09, Federal Reserve Bank of Chicago. [Downloadable!]
    Other versions:
  6. Fumiko Hayashi, 2008. "The economics of payment card fee structure: what is the optimal balance between merchant fee and payment card rewards?," Research Working Paper RWP 08-06, Federal Reserve Bank of Kansas City. [Downloadable!]
  7. Cyril Monnet & William Roberds, 2007. "Optimal pricing of payment services when cash is an alternative," Working Papers 07-26, Federal Reserve Bank of Philadelphia. [Downloadable!]
  8. Roberto Roson, 2005. "Two-Sided Markets: A Tentative Survey," Review of Network Economics, Concept Economics, vol. 4(2), pages 142-160, June. [Downloadable!]
  9. Bergman, Mats A., 2005. "A Welfare Ranking of Two-Sided Market Regimes," Working Paper Series 185, Sveriges Riksbank (Central Bank of Sweden), revised 01 Sep 2005. [Downloadable!]
  10. Cyril Monnet & William Roberds, 2006. "Credit and the no-surcharge rule," Working Paper 2006-25, Federal Reserve Bank of Atlanta. [Downloadable!]
  11. Scott Schuh & Joanna Stavins, 2008. "Summary of the workshop on Consumer Behavior and Payment Choice," Public Policy Discussion Paper 08-5, Federal Reserve Bank of Boston. [Downloadable!]
  12. Verdier, Marianne, 2006. "Retail Payment Systems: What can we Learn from Two-Sided Markets?," MPRA Paper 2606, University Library of Munich, Germany. [Downloadable!]
  13. James McAndrews & Zhu Wang, 2007. "Microfoundations of Two-sided Markets: The Payment Card Example," DNB Working Papers 128, Netherlands Central Bank, Research Department. [Downloadable!]
    Other versions:
  14. Lawrence White, 2006. "Market Definition and Market Power in Payment Card Networks: Some Comments and Considerations," Working Papers 06-03, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
  15. Anderson, Simon P & Gabszewicz, Jean Jaskold, 2005. "The Media and Advertising: A Tale of Two-Sided Markets," CEPR Discussion Papers 5223, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  16. Stuart E. Weiner & Julian Wright, 2005. "Interchange Fees in Various Countries: Developments and Determinants," Review of Network Economics, Concept Economics, vol. 4(4), pages 290-323, December. [Downloadable!]
    Other versions:
  17. 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!]
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This page was last updated on 2009-10-31.

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