Credit Cards and Buyer Price Protection

Arbeitspapier

In a duopoly model with homogeneous products, I show that allowing credit cards to offer buyer price protection will have both pro- and anti-competitive effects. Because of the buyer price protection, customers will be indifferent between purchasing an inexpensive and an expensive product as long as the difference in price is less than the cap on the refund allowed by the credit card. in order to obtain the entire market, a more efficient firm must charge prices lower than the marginal cost of the more inefficient firm. This is in contrast to the results obtained in pure Bertrand competition or when the firms themselves offer "meet the best price" clauses. The anti-competitive effects are similar to the results obtained when firms themselves offer "meet the best price" clauses. The anti-competitive effects strengthen as the cost difference between the firms decreases and as the cap on the refund allowed by the credit card increases.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper ; No. 978

Classification and Topics

• Classification: Wirtschaft

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Cohen, Gail
• Event: Veröffentlichung
• (who): Northwestern University, Kellogg School of Management, Center for Mathematical Studies in Economics and Management Science
• (where): Evanston, IL
• (when): 1992

Further information

• Handle: http://hdl.handle.net/10419/221337
• Last update: 10.03.2025, 11:42 AM CET