Advanced Search
MyIDEAS: Login

Plastic Clashes: Competition Among Closed and Open Payment Systems

Contents:

Author Info

  • Fabio Maria Manenti

    () (University of Padua)

  • Ernesto Somma

    () (University of Bari and Presidenza del Consiglio dei Ministri)

Abstract

This paper analyses market competition between two different types of payment schemes: card associations and proprietary systems. The main focus is on the role of the collective setting of the interchange fee by members of the association. We describe the sterilising role of the interchange fee: when the interchange fee is set so as to maximise the sum of issuers' and acquirers' profits, the equilibrium values of platforms' profits, of the sum of the fees charged by each platform and their market shares are independent of the competitive conditions within the associated members on the two sides of the market and are affected by the strength of inter-platform competition. We also show that the privately set interchange fee is socially inefficient, although this is not due to anticompetitive reasons.

Download Info

If 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.
File URL: http://www.decon.unipd.it/assets/pdf/wp/20100111.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Dipartimento di Scienze Economiche "Marco Fanno" in its series "Marco Fanno" Working Papers with number 0111.

as in new window
Length: 30 pages
Date of creation: Jan 2010
Date of revision:
Handle: RePEc:pad:wpaper:0111

Contact details of provider:
Postal: via del Santo, 33 - 35122 Padova
Phone: +39 +49 8274210
Fax: +39 +49 827.4211
Web page: http://www.decon.unipd.it/
More information through EDIRC

Related research

Keywords: credit cards; interchange fee; two-sided markets; network externalities;

Other versions of this item:

Find related papers by JEL classification:

References

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.:
as in new window
  1. Rochet, Jean-Charles & Tirole, Jean, 2003. "Platform Competition in Two-Sided Markets," Open Access publications from University of Toulouse 1 Capitole http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
  2. Schmalensee, Richard, 2002. "Payment Systems and Interchange Fees," Journal of Industrial Economics, Wiley Blackwell, vol. 50(2), pages 103-22, June.
  3. Mark Armstrong, 2006. "Competition in two‐sided markets," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 668-691, 09.
  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. 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.
  6. Joshua S. Gans & Stephen P. King, 2003. "Approaches to Regulating Interchange Fees in Payment Systems," Review of Network Economics, De Gruyter, vol. 2(2), pages 5.
  7. Wilko Bolt, 2008. "The European Commission's Ruling in MasterCard : A Wise Decision?," Antitrust Chronicle, Competition Policy International, vol. 4.
  8. Baxter, William F, 1983. "Bank Interchange of Transactional Paper: Legal and Economic Perspectives," Journal of Law and Economics, University of Chicago Press, vol. 26(3), pages 541-88, October.
  9. Caillaud, Bernard & Jullien, Bruno, 2003. " Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-28, Summer.
  10. Geoffrey G. Parker & Marshall W. Van Alstyne, 2005. "Two-Sided Network Effects: A Theory of Information Product Design," Management Science, INFORMS, vol. 51(10), pages 1494-1504, October.
  11. 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.
  12. Nicholas Economides, . "Network Economics with Application to Finance," Financial Networks _004, Economics of Networks.
  13. Graeme Guthrie & Julian Wright, 2007. "COMPETING PAYMENT SCHEMES -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 55(1), pages 37-67, 03.
  14. Bolt, Wilko & Tieman, Alexander F., 2008. "Heavily skewed pricing in two-sided markets," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1250-1255, September.
  15. Rochet, Jean-Charles & Tirole, Jean, 2006. "Two-Sided Markets: A Progress Report," Open Access publications from University of Toulouse 1 Capitole http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
  16. Julian Wright, 2001. "The Determinants of Optimal Interchange Fees in Payment Systems," Industrial Organization 0108001, EconWPA.
  17. Jean-Charles Rochet, 2003. "The Theory of Interchange Fees: A Synthesis of Recent Contributions," Review of Network Economics, De Gruyter, vol. 2(2), pages 4.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pad:wpaper:0111

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Fabio Maria Manenti).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.