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The No Surcharge Rule and Merchant Competition

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  • Frans Saxén

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Abstract

We analyze the no surcharge rule (NSR) and its impact on merchant competition by comparing different surcharging regimes. Any constraint on surcharging, including the NSR is shown to be a competition-softening device. A NSR may induce socially excessive card use. Allowing imperfectly competitive merchants to surcharge may lead to socially too little card use. Under a NSR, increased cost of card acceptance increases all prices, even the prices of a merchant not accepting cards. Under the NSR cards yielding no social surplus may be viable. This is not the case without the NSR. Card-use rewards may hurt consumers. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Frans Saxén, 2014. "The No Surcharge Rule and Merchant Competition," Journal of Industry, Competition and Trade, Springer, vol. 14(1), pages 39-66, March.
  • Handle: RePEc:kap:jincot:v:14:y:2014:i:1:p:39-66
    DOI: 10.1007/s10842-013-0151-3
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    More about this item

    Keywords

    No surcharge rule; Retail financial services; Payment card networks; Debit cards; Credit cards; Surcharging; G21; E42; L42;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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