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Shrouded transaction costs: must-take cards, discounts and surcharges

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  • Bourguignon, Hélène
  • Gomes, Renato
  • Tirole, Jean

Abstract

The proliferation of new payment methods on the Internet rekindles the old and unsettled debate about merchants’ incentive and ability to differentiate price according to payment choice. This paper develops an imperfect-information framework for the analysis of platform and social regulation of card surcharging and cash discounting. It makes three main contributions. First, it identifies the conditions under which concerns about missed sales induce merchants to perceive that they must take the card. Second, it derives a set of predictions about cash discounts, card surcharges and platform fees that shed light on existing evidence. Finally, it shows that the optimal regulation of surcharging is related to public policy toward merchant fees and substantially differs from current practice.

Suggested Citation

  • Bourguignon, Hélène & Gomes, Renato & Tirole, Jean, 2019. "Shrouded transaction costs: must-take cards, discounts and surcharges," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 99-144.
  • Handle: RePEc:eee:indorg:v:63:y:2019:i:c:p:99-144
    DOI: 10.1016/j.ijindorg.2018.10.004
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    References listed on IDEAS

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    Cited by:

    1. Hongru Tan, 2020. "The regulation of merchant fees in credit card markets," Journal of Regulatory Economics, Springer, vol. 57(3), pages 258-276, June.
    2. Rasch, Alexander & Thöne, Miriam & Wenzel, Tobias, 2020. "Drip pricing and its regulation: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 176(C), pages 353-370.
    3. Loertscher, Simon & Niedermayer, Andras, 2020. "Entry-deterring agency," Games and Economic Behavior, Elsevier, vol. 119(C), pages 172-188.

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    More about this item

    Keywords

    Payment cards; Cash discounts; Card surcharges; Hold-ups in two-sided markets; Missed sales;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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