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The Interchange Fees - A Comparison between Optimal Private and Social Levels

Listed author(s):
  • Dragoi, Ionut Mihai

    ()

    (Romanian Competition Council)

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    In this paper we derived the optimal conditions which allow for a comparison between private and social levels of the interchange fees (IFs). We expand the model developed by Rochet and Tirole (2002) by allowing for several extensions which lead to a more accurate understanding of the determinants of the interchange fees by payment card systems. More specifically, we looked at a card payment system with a for-profit platform, unobservable heterogeneity across merchants and not-fully informed customers. Merchants behave strategically and imperfect competition of both issuers and acquirers is also considered. The simultaneous treatment of these assumptions is the novelty of our work and it is done with the purpose of reflecting more realistically the payment card industry.

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    File URL: http://www.ipe.ro/rjef/rjef1_13/rjef1_2013p24-38.pdf
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    Article provided by Institute for Economic Forecasting in its journal Romanian Journal for Economic Forecasting.

    Volume (Year): (2013)
    Issue (Month): 1 (March)
    Pages: 24-38

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    Handle: RePEc:rjr:romjef:v::y:2013:i:1:p:24-38
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    1. Jean-Charles Rochet & Jean Tirole, 2014. "Platform Competition in Two-Sided Markets," CPI Journal, Competition Policy International, vol. 10.
    2. Rochet, Jean-Charles & Wright, Julian, 2010. "Credit card interchange fees," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1788-1797, August.
    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, 03.
    5. Rochet, Jean Charles & Tirole, Jean, 2008. "Tying in two-sided markets and the honor all cards rule," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1333-1347, November.
    6. Schmalensee, Richard, 2002. "Payment Systems and Interchange Fees," Journal of Industrial Economics, Wiley Blackwell, vol. 50(2), pages 103-122, June.
    7. Wright, Julian, 2003. "Optimal card payment systems," European Economic Review, Elsevier, vol. 47(4), pages 587-612, August.
    8. 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.
    9. Jean‐Charles Rochet & Jean Tirole, 2011. "Must‐Take Cards: Merchant Discounts And Avoided Costs," Journal of the European Economic Association, European Economic Association, vol. 9(3), pages 462-495, 06.
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