Same Price, Cash, or Card: Vertical Control by Payment Networks
AbstractThe no-surcharge rule (NSR) prohibits merchants from charging different prices to consumers that use credit cards instead of cash. We show that, while an NSR raises card company profits, it may reduce both cash and card transactions. If the card company can offer rebates to its cardholders, it will do so. Rebates benefit card users and harm cash users; they raise total surplus if and only if the proportion of cash users relative to card users exceeds some threshold. A similar condition determines whether total surplus rises under the NSR with rebates compared to no NSR; aggregate consumer surplus moves in opposite direction to total surplus. If the card company cannot limit its member banks from competing vigorously, then an NSR, by cross-subsidizing card purchases, can still reduce total surplus.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. 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.
Bibliographic InfoPaper provided by Georgetown University, Department of Economics in its series Working Papers with number gueconwpa~02-02-01.
Date of creation: 01 Feb 2002
Date of revision:
Contact details of provider:
Postal: Georgetown University Department of Economics Washington, DC 20057-1036
Web page: http://econ.georgetown.edu/
Postal: Marcia Suss Administrative Officer Georgetown University Department of Economics Washington, DC 20057-1036
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Robert M. Hunt, 2003.
"An introduction to the economics of payment card networks,"
03-10, Federal Reserve Bank of Philadelphia.
- Hunt Robert M., 2003. "An Introduction to the Economics of Payment Card Networks," Review of Network Economics, De Gruyter, vol. 2(2), pages 1-17, June.
- Chakravorti Sujit & Roson Roberto, 2006.
"Platform Competition in Two-Sided Markets: The Case of Payment Networks,"
Review of Network Economics,
De Gruyter, vol. 5(1), pages 1-25, March.
- 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.
- Graeme Guthrie & Julian Wright, 2003. "Competing Payment Schemes," Departmental Working Papers wp0311, National University of Singapore, Department of Economics.
- Wright, Julian, 2003. "Optimal card payment systems," European Economic Review, Elsevier, vol. 47(4), pages 587-612, August.
- Sujit Chakravorti, 2003.
"Theory of credit card networks: a survey of the literature,"
Payment Cards Center Discussion Paper
03-09, Federal Reserve Bank of Philadelphia.
- Chakravorti Sujit, 2003. "Theory of Credit Card Networks: A Survey of the Literature," Review of Network Economics, De Gruyter, vol. 2(2), pages 1-19, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marcia Suss).
If references are entirely missing, you can add them using this form.