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A model of check exchange

Author

Listed:
  • James J. McAndrews
  • William Roberds

Abstract

The authors construct and simulate a model of check exchange to examine the incentives a bank (or a bank clearinghouse) has to engage in practices that limit access to its payment facilities, in particular delaying the availability of check payment. The potentially disadvantaged bank has the option of directly presenting checks to the first bank. The authors find that if the retail banking market is highly competitive, the first bank will not engage in such practices, but if the retail banking market is imperfectly competitive, it will find it advantageous to restrict access to its facilities. Lower costs of direct presentment can reduce (but not eliminate) the range over which these practices are employed. The practice of delayed presentment can either reduce or increase welfare, again depending on the degree of competition in the market. The model suggests that, were the Federal Reserve System to exit the business of check processing, practices such as delayed presentment would b e more prevalent.

Suggested Citation

  • James J. McAndrews & William Roberds, 1997. "A model of check exchange," Working Papers 97-16, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:97-16
    as

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    References listed on IDEAS

    as
    1. Berger, Allen N & Hannan, Timothy H, 1989. "The Price-Concentration Relationship in Banking," The Review of Economics and Statistics, MIT Press, vol. 71(2), pages 291-299, May.
    2. Nicholas Economides & Giuseppe Lopomo & Glenn Woroch, 2009. "Strategic commitments and the principle of reciprocity in interconnection pricing," Chapters, in: Gary Madden & Russel Cooper (ed.), The Economics of Digital Markets, chapter 5, pages 62-99, Edward Elgar Publishing.
    3. repec:bla:jindec:v:46:y:1998:i:4:p:433-52 is not listed on IDEAS
    4. Nicholas Economides & Giuseppe Lopomo & Glenn Woroch, 1997. "Strategic Commitments and the Principle of Reciprocity in Interconnection Pricing," Industrial Organization 9701001, University Library of Munich, Germany.
    5. Economides, N. & Lopomo, G. & Woroch, G., 1996. "Regulatory Rules to Neutralize Network Dominance," Working Papers 96-14, New York University, Leonard N. Stern School of Business, Department of Economics.
    6. Economides, Nicholas & Lopomo, Giuseppe & Woroch, Glenn, 1996. "Regulatory Pricing Rules to Neutralize Network Dominance," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 5(4), pages 1013-1028.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Sherrill Shaffer, 1997. "Network diseconomies and optimal structure," Working Papers 97-19, Federal Reserve Bank of Philadelphia.
    2. Tore Nilssen, 2011. "Risk externalities in a payments oligopoly," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 10(3), pages 211-234, December.

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