The price effects of reducing payment card interchange fees

Artikel

In this paper we empirically address the issue of whether reductions in card payment interchange fees have a significant impact on prices paid by consumers. The answer to this question is at the core of most competition policy cases and regulations that have been applied to card payment markets. Relying on Rochet and Tirole's (RandJEcon 33:549-570, 2002) model of this sector as a two-sided market, we identify the two channels through which interchange fee reductions may influence retail prices: the impact on cards' demand and on the merchant service charge, which may be passed through to retail prices. We use Spanish sectoral data to estimate the resulting system of equations. Our results imply that a 1% reduction in the level of the interchange fee leads to a long run 0.17% reduction in the retail price index. Such outcome is almost exclusively the result of the interchange fees being passed through as lower prices by merchants, as we find that they have a negligible impact on payment cards' usage.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: SERIEs - Journal of the Spanish Economic Association ; ISSN: 1869-4195 ; Volume: 14 ; Year: 2023 ; Issue: 2 ; Pages: 189-221

Classification and Topics

• Classification: Wirtschaft ; Price Level; Inflation; Deflation ; General Financial Markets: Government Policy and Regulation ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Economics of Regulation
• Subject: Card payment network ; Interchange fee ; Retail prices ; Two-sided markets

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Shabgard, Bita ; Asensio, Javier
• Event: Veröffentlichung
• (who): Springer
• (where): Heidelberg
• (when): 2023

Further information

• DOI: doi:10.1007/s13209-023-00278-y
• Last update: 10.03.2025, 11:43 AM CET