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Plastic Clashes: Competition Among Closed and Open Payment Systems

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Listed:
  • Fabio Maria Manenti

    (University of Padua)

  • Ernesto Somma

    (University of Bari and Presidenza del Consiglio dei Ministri)

Abstract

This paper analyses market competition between two different types of payment schemes: card associations and proprietary systems. The main focus is on the role of the collective setting of the interchange fee by members of the association. We describe the sterilising role of the interchange fee: when the interchange fee is set so as to maximise the sum of issuers' and acquirers' profits, the equilibrium values of platforms' profits, of the sum of the fees charged by each platform and their market shares are independent of the competitive conditions within the associated members on the two sides of the market and are affected by the strength of inter-platform competition. We also show that the privately set interchange fee is socially inefficient, although this is not due to anticompetitive reasons.

Suggested Citation

  • Fabio Maria Manenti & Ernesto Somma, 2010. "Plastic Clashes: Competition Among Closed and Open Payment Systems," "Marco Fanno" Working Papers 0111, Dipartimento di Scienze Economiche "Marco Fanno".
    • Handle: RePEc:pad:wpaper:0111
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    credit cards; interchange fee; two-sided markets; network externalities;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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