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The mixed oligopoly of cross-border payment systems

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  • Kauko, Karlo

Abstract

This paper presents a model depicting cross-border payment systems as a mixed oligopoly.A private net settlement system that maximises profit competes with the central banks' gross settlement system that maximises welfare.It may be optimal for the central bank system to encourage increased use of the private system by charging fees that exceed the marginal cost.The central bank system is not only a competitor but also an essential service provider, because central bank money is needed for net settlement of payments in the private system.In some cases the central bank system can paradoxically induce the private system to charge lower fees by making it expensive to use central bank money for settlement purposes.

Suggested Citation

  • Kauko, Karlo, 2005. "The mixed oligopoly of cross-border payment systems," Bank of Finland Research Discussion Papers 11/2005, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp2005_011
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    payment systems; network economics; mixed oligopolies;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

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