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Do No-Surcharge Rules Increase Effective Retail Prices?

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Listed:
  • Takanori ADACHI
  • Mark J. TREMBLAY

Abstract

In this paper, we determine how a no-surcharge rule (NSR) impacts effective prices in retail markets (prices that include any consumer payment rewards). This question is fundamentally related to policy, and we provide robust answers by considering how a variety of market structures are impacted by multiple payment methods and different surcharging rules. We find that when a no-surcharge rule is applied, effective prices in a particular market are often higher across all payment methods. In this case, the no-surcharge rule protects a double marginalization effect where the premium payment method inserts an additional margin that harms all consumers and all merchants, and this loss in welfare can be rectified by allowing merchant surcharging across payment methods. Our results are robust across retail market structures, suggesting that NSRs are generally harmful (except for the payment companies).

Suggested Citation

  • 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.
    • Handle: RePEc:kue:epaper:e-22-003
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    File URL: http://www.econ.kyoto-u.ac.jp/dp/papers/e-22-003.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Credit cards; merchant fees; consumer rewards; Ohio v.s. American Express;
    All these keywords.

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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