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Platform Competition With Cash‐Back Rebates Under No Surcharge Rules

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  • Marius Schwartz
  • Daniel R. Vincent

Abstract

We analyze competing strategic platforms setting fees to a local monopolist merchant and cash‐back rebates to end users, when the merchant may not surcharge platforms’ customers, a rule imposed by some credit card networks. Each platform has an incentive to gain transactions by increasing the spread between its merchant fee and user rebate above its rival's spread. This incentive yields non‐existence of a pure strategy equilibrium in many natural environments. In some circumstances, a mixed strategy equilibrium exists where platforms choose fee structures that induce merchants to accept only one platform with equal probability, a form of monopolistic market allocation.

Suggested Citation

  • Marius Schwartz & Daniel R. Vincent, 2020. "Platform Competition With Cash‐Back Rebates Under No Surcharge Rules," Journal of Industrial Economics, Wiley Blackwell, vol. 68(2), pages 298-327, June.
    • Handle: RePEc:bla:jindec:v:68:y:2020:i:2:p:298-327
    DOI: 10.1111/joie.12210
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    References listed on IDEAS

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    Cited by:

    1. Hongru Tan & Zhongqi Deng, 2020. "The no‐surcharge rule and surcharging behaviours in credit card markets," Australian Economic Papers, Wiley Blackwell, vol. 59(4), pages 358-375, December.
    2. Takanori ADACHI & Mark J. TREMBLAY, 2022. "Do No-Surcharge Rules Increase Effective Retail Prices?," Discussion papers e-22-003, Graduate School of Economics , Kyoto University.

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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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