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The Effect of Regulatory Intervention in Two-Sided Markets: An Assessment of Interchange-Fee Capping in Australia

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Listed:
  • Chang Howard

    (LECG, LLC)

  • Evans David S.

    (LECG, LLC)

  • Garcia Swartz Daniel D.

    (LECG, LLC)

Abstract

We examine the impact to date of the Reserve Bank of Australia's decision to reduce interchange fees on credit cards in Australia by almost half. We find that, in the short run, issuers have recovered between 30 and 40 percent of the loss of interchange fees. Merchants have benefited from lower fees but it is questionable whether those benefits have been substantially passed on to their customers. The per-transaction price at the point of sale has not changed significantly and there is relatively little evidence thus far that the intervention has affected the volume of card transactions in Australia.

Suggested Citation

  • Chang Howard & Evans David S. & Garcia Swartz Daniel D., 2005. "The Effect of Regulatory Intervention in Two-Sided Markets: An Assessment of Interchange-Fee Capping in Australia," Review of Network Economics, De Gruyter, vol. 4(4), pages 1-31, December.
    • Handle: RePEc:bpj:rneart:v:4:y:2005:i:4:n:5
    DOI: 10.2202/1446-9022.1080
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    Citations

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    Cited by:

    1. Ron Borzekowski & K. Kiser Elizabeth & Ahmed Shaista, 2008. "Consumers' Use of Debit Cards: Patterns, Preferences, and Price Response," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(1), pages 149-172, February.
    2. Huang, Yangguang & Xie, Yu, 2023. "Search algorithm, repetitive information, and sales on online platforms," International Journal of Industrial Organization, Elsevier, vol. 88(C).
    3. Isaac Gross & Andrew Leigh, 2022. "Assessing Australian Monetary Policy in the Twenty‐First Century," The Economic Record, The Economic Society of Australia, vol. 98(322), pages 271-295, September.
    4. Wilko Bolt & Sujit Chakravorti, 2011. "Pricing in Retail Payment Systems: A Public Policy Perspective on Pricing of Payment Cards," DNB Working Papers 331, Netherlands Central Bank, Research Department.
    5. Tosza, Katarzyna, 2009. "Payment Card Systems as an Example of two-sided Markets - a Challenge for Antitrust Authorities," MPRA Paper 23822, University Library of Munich, Germany.
    6. Ardizzi, Guerino, 2013. "Card versus cash: empirical evidence of the impact of payment card interchange fees on end users’ choice of payment methods," MPRA Paper 48088, University Library of Munich, Germany, revised 25 May 2013.
    7. Wilko Bolt & Sujit Chakravorti, 2010. "Digitization of Retail Payment," DNB Working Papers 270, Netherlands Central Bank, Research Department.
    8. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107069978, October.
    9. Verdier, Marianne, 2012. "Interchange fees and inefficiencies in the substitution between debit cards and cash," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 682-696.
    10. Julian Wright, 2012. "Why payment card fees are biased against retailers," RAND Journal of Economics, RAND Corporation, vol. 43(4), pages 761-780, December.
    11. Rochet, Jean-Charles & Wright, Julian, 2010. "Credit card interchange fees," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1788-1797, August.
    12. Rysman Marc & Wright Julian, 2014. "The Economics of Payment Cards," Review of Network Economics, De Gruyter, vol. 13(3), pages 303-353, September.
    13. Damien Neven & Svend Albæk, 2008. "Antitrust Update: DG Competition 2007–2008," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 33(3), pages 231-246, November.
    14. Egor A. Krivosheya, 2018. "Evaluating Efficient Multilateral Interchange Fees: Evidence from End-User Benefits," HSE Working papers WP BRP 66/FE/2018, National Research University Higher School of Economics.
    15. Barbosa, Klenio & Rocha, Bruno de Paula & Pereira, Luan Michel & Passos, Luiz Fernando, 2024. "Payment card interchange fee regulation and financial institutions: The effects on traditional and fintech financial conglomerates," Finance Research Letters, Elsevier, vol. 64(C).

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