IDEAS home Printed from https://ideas.repec.org/p/geo/guwopa/gueconwpa~02-02-01.html
   My bibliography  Save this paper

Same Price, Cash, or Card: Vertical Control by Payment Networks

Author

Abstract

The no-surcharge rule (NSR) prohibits merchants from charging different prices to consumers that use credit cards instead of cash. We show that, while an NSR raises card company profits, it may reduce both cash and card transactions. If the card company can offer rebates to its cardholders, it will do so. Rebates benefit card users and harm cash users; they raise total surplus if and only if the proportion of cash users relative to card users exceeds some threshold. A similar condition determines whether total surplus rises under the NSR with rebates compared to no NSR; aggregate consumer surplus moves in opposite direction to total surplus. If the card company cannot limit its member banks from competing vigorously, then an NSR, by cross-subsidizing card purchases, can still reduce total surplus.

Suggested Citation

  • Marius Schwartz & Daniel Vincent, 2002. "Same Price, Cash, or Card: Vertical Control by Payment Networks," Working Papers gueconwpa~02-02-01, Georgetown University, Department of Economics.
    • Handle: RePEc:geo:guwopa:gueconwpa~02-02-01
    as

    Download full text from publisher

    File URL: http://www8.georgetown.edu/departments/economics/pdf/201.pdf
    File Function: Full text
    Download Restriction: None
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chakravorti Sujit, 2003. "Theory of Credit Card Networks: A Survey of the Literature," Review of Network Economics, De Gruyter, vol. 2(2), pages 1-19, June.
    2. Chakravorti Sujit & Roson Roberto, 2006. "Platform Competition in Two-Sided Markets: The Case of Payment Networks," Review of Network Economics, De Gruyter, vol. 5(1), pages 1-25, March.
    3. Hunt Robert M., 2003. "An Introduction to the Economics of Payment Card Networks," Review of Network Economics, De Gruyter, vol. 2(2), pages 1-17, June.
    4. Julian Wright, 2004. "The Determinants of Optimal Interchange Fees in Payment Systems," Journal of Industrial Economics, Wiley Blackwell, vol. 52(1), pages 1-26, March.
    5. Wright, Julian, 2003. "Optimal card payment systems," European Economic Review, Elsevier, vol. 47(4), pages 587-612, August.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:geo:guwopa:gueconwpa~02-02-01. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Marcia Suss (email available below). General contact details of provider: http://econ.georgetown.edu/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.