Pricing Payment Cards

Arbeitspapier

Payment card networks, such as Visa, require merchants' banks to pay substantial 'interchange' fees to cardholders' banks, on a per transaction basis. This paper shows that a network's profit-maximizing fee induces an inefficient price structure, over-subsidizing card usage and over-taxing merchants. In contrast to the literature we show that this distortion is systematic and arises from the fact that consumers make two distinct decisions (membership and usage) whereas merchants make only one (membership). These findings are robust to competition for cardholders and/or for merchants, network competition, and strategic card acceptance to attract consumers.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ESMT Working Paper ; No. 10-005

Classification and Topics

• Classification: Management ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Production, Pricing, and Market Structure; Size Distribution of Firms ; Vertical Restraints; Resale Price Maintenance; Quantity Discounts ; Nonprofit Institutions; NGOs; Social Entrepreneurship ; Economics of Regulation ; Antitrust Law
• Subject: payment card networks ; interchange fees ; merchant fees ; Kreditkartengesellschaft ; Gebühr ; Anreizregulierung ; Wohlfahrtsanalyse ; Unvollkommener Wettbewerb ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bedre-Defolie, Özlem ; Calvano, Emilio
• Event: Veröffentlichung
• (who): European School of Management and Technology (ESMT)
• (where): Berlin
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/96557
• URN: urn:nbn:de:101:1-201106143691
• Last update: 10.03.2025, 11:41 AM CET