Plastic Clashes: Competition among Closed and Open Systems in the Credit Card Industry
AbstractThis paper analyses market competition between two different types of credit card platforms: not-for-profit associations and proprietary systems. The main focus is on the role of the interchange fee set by not-for-profit platforms. We show that 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 not-for-profit platform and are affected by the strength of inter-platform competition. We also show that the imposition of a ban on the setting of the interchange fee has ambiguous effects on the profit of the proprietary system.
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 EconWPA in its series Industrial Organization with number 0211012.
Date of creation: 06 Nov 2002
Date of revision:
Note: Type of Document - Latex; prepared on PC; to print on HP;
Contact details of provider:
Web page: http://184.108.40.206
two-sided markets; network externalities; credit cards; interchange fee;
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs
- L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
This paper has been announced in the following NEP Reports:
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.:
- Richard Schmalensee, 2001.
"Payment Systems and Interchange Fees,"
NBER Working Papers
8256, National Bureau of Economic Research, Inc.
- Joshua S. Gans & Stephen P. King, 2003. "A Theoretical Analysis of Credit Card Reform in Australia," The Economic Record, The Economic Society of Australia, vol. 79(247), pages 462-472, December.
- Jean-Charles Rochet & Jean Triole, 2002.
"Platform Competition in Two Sided Markets,"
FMG Discussion Papers
dp409, Financial Markets Group.
- Fumiko Hayashi & Stuart E. Wiener, 2006. "Interchange fees in Australia, the UK, and the United States : matching theory and practice," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 75-112.
- Evans, David & Schmalensee, Richard, 2005.
"The Economics of Interchange Fees and Their Regulation: An Overview,"
18181, Massachusetts Institute of Technology (MIT), Sloan School of Management.
- David S. Evans & Richard Schmalensee, 2005. "The economics of interchange fees and their regulation : an overview," Proceedings – Payments System Research Conferences, Federal Reserve Bank of Kansas City, issue May, pages 73-120.
- Evans, David S. & Schmalensee, Richard L., 2005. "The Economics of Interchange Fees and Their Regulation: An Overview," Working paper 105, Regulation2point0.
- Fumiko Hayashi & Stuart E. Weiner, 2005. "Competition and credit and debit card interchange fees: a cross-country analysis," Payments System Research Working Paper PSR WP 05-03, Federal Reserve Bank of Kansas City.
- Uwe Dulleck & Hans W. Friederiszick, 2004.
"Die Großen Zwei - Wettbewerb im Kreditkartenmarkt?,"
Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik),
Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 224(4), pages 445-470, July.
- Uwe Dulleck, 2002. "Die Großen Zwei - Wettbewerb im Kreditkartenmarkt?," Vienna Economics Papers 0201, University of Vienna, Department of Economics.
- Fumiko Hayashi, 2006. "Pricing and welfare implications of payment card network competition," Payments System Research Working Paper PSR WP 06-03, Federal Reserve Bank of Kansas City.
- Fumiko Hayashi, 2004.
"A puzzle of card payment pricing : why are merchants still accepting card payments?,"
Payments System Research Working Paper
PSR WP 04-02, Federal Reserve Bank of Kansas City.
- Hayashi Fumiko, 2006. "A Puzzle of Card Payment Pricing: Why Are Merchants Still Accepting Card Payments?," Review of Network Economics, De Gruyter, vol. 5(1), pages 1-31, March.
- Verdier, Marianne, 2006. "Retail Payment Systems: What can we Learn from Two-Sided Markets?," MPRA Paper 2606, University Library of Munich, Germany.
- Roberto Roson, 2005. "Platform Competition with Endogenous Multihoming," Working Papers 2005.20, Fondazione Eni Enrico Mattei.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.