Is Nonprice Competition in Currency Inefficient?
Some economists believe that the competitive survival of noninterest-bearing currency--the absence of price competition from markets for stored-value cards, banknotes, and token coins--implies a waste of resources on nonprice competition. The authors argue to the contrary that market forces drive issuers toward an efficient mix of price and nonprice competition. Where economic costs (rather than legal restrictions) rule out the delivery of interest on currency, competition exclusively along nonprice dimensions is consistent with efficiency. The authors graphically illustrate such a case.
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Volume (Year): 30 (1998)
Issue (Month): 2 (May)
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