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Platform Competition With User Rebates Under No Surcharge Rules

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Abstract

We analyze competing strategic platforms setting fees to a local monopo- list merchant and rebates to end users, when the merchant is prevented from surcharging platforms customers, as frequently occurs with credit cards. Each platform has an incentive to gain transactions by increasing the spread between its merchant fee and user rebate above its rivalÕs spread. This incentive yields non-existence of pure strategy equilibrium in many natural environments. In some circumstances, there is a mixed strategy equilibrium where platforms choose fee structures that induce the merchant to accept only one platform with equal probability, a form of monopolistic market allocation.

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  • Marius Schwartz & Daniel R. Vincent, 2011. "Platform Competition With User Rebates Under No Surcharge Rules," Working Papers gueconwpa~17-17-07, Georgetown University, Department of Economics.
    • Handle: RePEc:geo:guwopa:gueconwpa~17-17-07
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    More about this item

    Keywords

    Platform price competition; rebates; no surcharge; payment networks; credit cards.;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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