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Payment Card Network Pricing - A Theoretical Approach Analyzing the Relationship between Downstream Market Characteristics and the Merchant Usage Fee

  • Langlet, Markus
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    In this thesis the model of a payment card network is constructed to explore the impact of downstream market characteristics (i.e., the market where merchants and consumers interact) on the merchant and the interchange fee, thereby extending the literature’s observations of payment systems. To accomplish this, three scenarios are analyzed: firstly, a unitary payment card network with merchants under Cournot quantity competition and, secondly, under Bertrand price competition respectively, as well as, thirdly, a multi-party payment card network with merchants under Cournot quantity competition. This study yields two significant results. Firstly, the merchant and the interchange fee are found decreasing in the consumer price elasticity, the level of product substitutability and the relative frequency of card usage. Secondly, regulating the interchange fee and the merchant fee respectively is found particularly useful since, in markets with less competition where consumers already face inefficiently high prices, the payment card fees will also tend to be higher.

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    File URL: http://econstor.eu/bitstream/10419/44593/1/Dissertation_Markus_Langlet.pdf
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    This book is provided by ZBW - German National Library of Economics in its series EconStor Theses with number 44593 and published in 2011.
    Handle: RePEc:zbw:esthes:44593
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    1. David S. Evans & Richard Schmalensee, 2005. "The Industrial Organization of Markets with Two-Sided Platforms," NBER Working Papers 11603, National Bureau of Economic Research, Inc.
    2. Wilko Bolt & Sujit Chakravorti, 2008. "Economics of payment cards: a status report," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 15-27.
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