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Elimination of Competitors: Some Economics of Payment Card Associations

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  • Koki Arai

Abstract

This paper analyzes platforms and rejections in two-sided markets with network externalities, using the specific context of a payment card association. We study the cooperative antitrust determination of the interchange fee by member banks. We use a framework in which banks and merchants may have market power and consumers and merchants decide rationally on whether to buy or accept a payment card developed by Rochet and Tirole (2002). After drawing the welfare implications of a cooperative determination of the interchange fee and antitrust conducts, we describe in detail the factors affecting merchant resistance, compare cooperative and for-profit business models, and make a first cut in the analysis of system competition.

Suggested Citation

  • Koki Arai, 2004. "Elimination of Competitors: Some Economics of Payment Card Associations," ISER Discussion Paper 0612, Institute of Social and Economic Research, Osaka University.
    • Handle: RePEc:dpr:wpaper:0612
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