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Plastic Clashes: Competition among Closed and Open Systems in the Credit Card Industry

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Author Info
Fabio M. Manenti (Dept. of Economics "M. Fanno", University of Padua, Italy)
Ernesto Somma (Dept. of Economics, University of Bari, Italy)

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Abstract

This 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.

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Publisher Info
Paper provided by EconWPA in its series Industrial Organization with number 0211012.

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Date of creation: 06 Nov 2002
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Handle: RePEc:wpa:wuwpio:0211012

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Web page: http://129.3.20.41

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

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Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository 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

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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. Schmalensee, Richard, 2002. "Payment Systems and Interchange Fees," Journal of Industrial Economics, Blackwell Publishing, vol. 50(2), pages 103-22, June. [Downloadable!] (restricted)
    Other versions:
  2. Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 990-1029, 06. [Downloadable!] (restricted)
    Other versions:
  3. 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.
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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. 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. [Downloadable!]
  2. 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. [Downloadable!]
  3. Verdier, Marianne, 2006. "Retail Payment Systems: What can we Learn from Two-Sided Markets?," MPRA Paper 2606, University Library of Munich, Germany. [Downloadable!]
  4. Roberto Roson, 2005. "Platform Competition with Endogenous Multihoming," Working Papers 2005.20, Fondazione Eni Enrico Mattei. [Downloadable!]
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This page was last updated on 2009-11-13.

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