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Theory of credit card networks: a survey of the literature

  • Sujit Chakravorti

Credit cards provide benefits to consumers and merchants not provided by other payment instruments as evidenced by their explosive growth in the number and value of transactions over the last 20 years. Recently, credit card networks have come under scrutiny from regulators and antitrust authorities around the world. The costs and benefits of credit cards to network participants are discussed. Focusing on interrelated bilateral transactions, several theoretical models have been constructed to study the implications of several business practices of credit card networks. The results and implications of these economic models along with future research topics are discussed.

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Paper provided by Federal Reserve Bank of Philadelphia in its series Payment Cards Center Discussion Paper with number 03-09.

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Date of creation: 2003
Date of revision:
Publication status: Published in Review of Network Economics, v. 2. no. 2 (June 2003, pp 50-68)
Handle: RePEc:fip:fedpdp:03-09
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  1. 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 541-88, October.
  2. Sujit Chakravorti & William R. Emmons, 2001. "Who pays for credit cards?," Occasional Paper; Emerging Payments EPS-2001-1, Federal Reserve Bank of Chicago.
  3. Wright, Julian, 2003. "Pricing in debit and credit card schemes," Economics Letters, Elsevier, vol. 80(3), pages 305-309, September.
  4. Jean-Charles Rochet & Jean Triole, 2002. "Platform Competition in Two Sided Markets," FMG Discussion Papers dp409, Financial Markets Group.
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  7. 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.
  8. Chakravorti, Sujit & To, Ted, 2007. "A theory of credit cards," International Journal of Industrial Organization, Elsevier, vol. 25(3), pages 583-595, June.
  9. William P. Osterberg & James B. Thomson, 1998. "Network externalities: the catch-22 of retail payments innovations," Economic Commentary, Federal Reserve Bank of Cleveland, issue Feb.
  10. Julian Wright, 2001. "The Determinants of Optimal Interchange Fees in Payment Systems," Industrial Organization 0108001, EconWPA.
  11. JOHN M. Barron & MICHAEL E. Staten & JOHN Umbeck, 1992. "Discounts For Cash In Retail Gasoline Marketing," Contemporary Economic Policy, Western Economic Association International, vol. 10(4), pages 89-102, October.
  12. Marius Schwartz & Daniel Vincent, 2002. "Same Price, Cash, or Card: Vertical Control by Payment Networks," Working Papers gueconwpa~02-02-01, Georgetown University, Department of Economics.
  13. 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.
  14. Kitch, Edmund W, 1990. "The Framing Hypothesis: Is It Supported by Credit Card Issuer Opposition to a Surcharge on a Cash Price?," Journal of Law, Economics and Organization, Oxford University Press, vol. 6(1), pages 217-33, Spring.
  15. Brito, Dagobert L & Hartley, Peter R, 1995. "Consumer Rationality and Credit Cards," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 400-433, April.
  16. James J. McAndrews, 1997. "Network issues and payment systems," Business Review, Federal Reserve Bank of Philadelphia, issue Nov, pages 15-25.
  17. Graeme Guthrie & Julian Wright, 2003. "Competing Payment Schemes," Departmental Working Papers wp0311, National University of Singapore, Department of Economics.
  18. Joshua S. Gans & Stephen P. King, 2003. "A Theoretical Analysis of Credit Card Reform in Australia," The Economic Record, The Economic Society of Australia, vol. 79(247), pages 462-472, December.
  19. Ausubel, Lawrence M, 1991. "The Failure of Competition in the Credit Card Market," American Economic Review, American Economic Association, vol. 81(1), pages 50-81, March.
  20. Sujit Chakravorti & Timothy McHugh, 2002. "Why do we use so many checks?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 44-59.
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