Imposing choice under ambiguity: The case of dynamic currency conversion

Arbeitspapier

It is a common experience for present-day consumers making an international payment via credit or debit card to be invited to choose the currency in which they wish to have the transaction executed. While this choice, made feasible by a technology known as dynamic currency conversion (DCC), seems to foster competition, we show that the opposite is the case. In fact, the unique pure-strategy Nash equilibrium in a natural fee-setting game turns out to be highly asymmetric, entailing fees for the service provider that always exceed the monopoly level. Although losses in welfare may be substantial, a regulatory solution is unlikely to come about due to a global free-rider problem.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 345

Classification and Topics

• Classification: Wirtschaft ; Firm Behavior: Theory ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financial Institutions and Services: Government Policy and Regulation
• Subject: Dynamic currency conversion ; payment cards ; ambiguity aversion ; price competition ; monopoly ; free-rider problem

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Ewerhart, Christian ; Li, Sheng
• Event: Veröffentlichung
• (who): University of Zurich, Department of Economics
• (where): Zurich
• (when): 2020

Further information

• DOI: doi:10.5167/uzh-187399
• Handle: http://hdl.handle.net/10419/216846
• Last update: 10.03.2025, 11:41 AM CET