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Payment System Self-Regulation through Fee Caps

Author

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  • Griem Fabian

    (Goethe University Frankfurt, Chair of Finance and Economics, Theodor-W.-Adorno-Platz 3, 60323Frankfurt am Main, Germany)

Abstract

This paper considers the organization of a single (domestic) payment system. When card issuers that are members of a payment system set their fees individually, this gives rise to a free-riding problem, as in providing access to different customers, card issuers are complements from the perspective of each merchant. When payment systems can threaten to exclude, in particular, card issuers with a smaller customer base that do not adhere to a common cap on fees, this allows to restore the full internalization outcome, leading to lower fees but higher profits and higher welfare. When payment systems cannot threaten to exclude card issuers, the full internalization outcome arises only when card issuers are sufficiently symmetric.

Suggested Citation

  • Griem Fabian, 2020. "Payment System Self-Regulation through Fee Caps," Review of Network Economics, De Gruyter, vol. 18(3), pages 141-167, September.
    • Handle: RePEc:bpj:rneart:v:18:y:2020:i:3:p:141-167:n:2
    DOI: 10.1515/rne-2020-0015
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    References listed on IDEAS

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    1. John Bagnall & David Bounie & Kim P. Huynh & Anneke Kosse & Tobias Schmidt & Scott Schuh, 2016. "Consumer Cash Usage: A Cross-Country Comparison with Payment Diary Survey Data," International Journal of Central Banking, International Journal of Central Banking, vol. 12(4), pages 1-61, December.
    2. Patrick Rey & Jean Tirole, 2019. "Price Caps as Welfare-Enhancing Coopetition," Journal of Political Economy, University of Chicago Press, vol. 127(6), pages 3018-3069.
    3. Nicole Jonker & Anneke Kosse & Lola Hernández, 2012. "Cash usage in the Netherlands: How much, where, when, who and whenever one wants?," DNB Occasional Studies 1002, Netherlands Central Bank, Research Department.
    4. Yassine Bouhdaoui & David Bounie, 2012. "Modeling the Share of Cash Payments in the Economy: An Application to France," International Journal of Central Banking, International Journal of Central Banking, vol. 8(4), pages 175-195, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    payment systems; fee caps; antitrust;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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