Plastic Clashes: Competition among Closed and Open Systems in the Credit Card Industry
This paper analyses market competition between two different types of credit card platforms: not-for-profit associations and proprietary systems. The main focus is on the role of the interchange fee set by not-for-profit platforms. We show that 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 not-for-profit platform and are affected by the strength of inter-platform competition. We also show that the imposition of a ban on the setting of the interchange fee has ambiguous effects on the profit of the proprietary system.
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- 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.
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LSE Research Online Documents on Economics
24929, London School of Economics and Political Science, LSE Library.
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- Jean-Charles Rochet & Jean Tirole, 2014. "Platform Competition in Two-Sided Markets," CPI Journal, Competition Policy International, vol. 10.
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- Rochet, Jean-Charles & Tirole, Jean, 2003. "Platform Competition in Two-Sided Markets," IDEI Working Papers 152, Institut d'Économie Industrielle (IDEI), Toulouse.
- Richard Schmalensee, 2001.
"Payment Systems and Interchange Fees,"
NBER Working Papers
8256, National Bureau of Economic Research, Inc.
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