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Perfect surcharging and the tourist test interchange fee

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  • Zenger, Hans

Abstract

Two widely discussed pricing benchmarks in the literature on payment card markets are the "tourist test" interchange fee (Rochet and Tirole, forthcoming), which internalizes usage externalities in payment card markets, and "perfect surcharging" by merchants (Rochet and Tirole, 2002). This paper shows that these benchmarks are allocatively equivalent. Implications for the regulatory treatment of interchange fees and no-surcharge rules are discussed.

Suggested Citation

  • Zenger, Hans, 2011. "Perfect surcharging and the tourist test interchange fee," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2544-2546, October.
  • Handle: RePEc:eee:jbfina:v:35:y:2011:i:10:p:2544-2546
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    References listed on IDEAS

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    1. Rochet, Jean-Charles & Wright, Julian, 2010. "Credit card interchange fees," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1788-1797, August.
    2. Guthrie, Graeme & Wright, Julian, 2003. "Competing Payment Schemes," Working Papers 173, Department of Economics, The University of Auckland.
    3. Farrell Joseph, 2006. "Efficiency and Competition between Payment Instruments," Review of Network Economics, De Gruyter, vol. 5(1), pages 1-19, March.
    4. Julian Wright, 2004. "The Determinants of Optimal Interchange Fees in Payment Systems," Journal of Industrial Economics, Wiley Blackwell, vol. 52(1), pages 1-26, March.
    5. Gans Joshua S & King Stephen P, 2003. "The Neutrality of Interchange Fees in Payment Systems," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-18, January.
    6. 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.
    7. 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 541-588, October.
    8. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
    9. Wright, Julian, 2003. "Pricing in debit and credit card schemes," Economics Letters, Elsevier, vol. 80(3), pages 305-309, September.
    10. Bolt, Wilko & Jonker, Nicole & van Renselaar, Corry, 2010. "Incentives at the counter: An empirical analysis of surcharging card payments and payment behaviour in the Netherlands," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1738-1744, August.
    11. John Vickers, 2005. "Public policy and the invisible price : competition law, regulation, and the interchange fee," Proceedings – Payments System Research Conferences, Federal Reserve Bank of Kansas City, issue May, pages 231-247.
    12. Rochet Jean-Charles & Tirole Jean, 2003. "An Economic Analysis of the Determination of Interchange Fees in Payment Card Systems," Review of Network Economics, De Gruyter, vol. 2(2), pages 1-11, June.
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    Citations

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    Cited by:

    1. Zenger, Hans, 2012. "Differentiated interchange fees," Economics Letters, Elsevier, vol. 115(2), pages 276-278.
    2. Ardizzi, Guerino, 2013. "Card versus cash: empirical evidence of the impact of payment card interchange fees on end users’ choice of payment methods," MPRA Paper 48088, University Library of Munich, Germany, revised 25 May 2013.
    3. Rysman Marc & Wright Julian, 2014. "The Economics of Payment Cards," Review of Network Economics, De Gruyter, vol. 13(3), pages 303-353, September.
    4. Börestam, Ann & Schmiedel, Heiko, 2011. "Interchange fees in card payments," Occasional Paper Series 131, European Central Bank.
    5. Korsgaard, Søren, 2014. "Paying for payments: free payments and optimal interchange fees," Working Paper Series 1682, European Central Bank.
    6. Martikainen, Emmi & Schmiedel, Heiko & Takalo, Tuomas, 2015. "Convergence of European retail payments," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 81-91.
    7. Layne-Farrar Anne, 2013. "Assessing the Durbin Amendment’s Debit Card Interchange Fee Cap: An Application of the “Tourist Test” to US Retailer Data," Review of Network Economics, De Gruyter, vol. 12(2), pages 157-182, June.

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